A company has a choice between taking a $230,000 loan or accepting a cash discount terms...

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A company has a choice between taking a $230,000 loan or accepting a cash discount terms 3/18, net 75. A creditor will loan the money for 1 year at an interest cost of $12,200. The creditor requires a 20% compensating balance. However, the company ordinarily maintains 50% of that requirement. If the company takes the loan, it must make 12 equal monthly payments to retire the obligation. Required: Which do you think is the better option? Specify your calculations and justify your decision outcome. Assume a 360-day year calendar. Ignore Cost of not taking a cash discount => ERI on an installement loan = Discount% Days in Year 100%-Discount% Final Due Date - Discount Period X 2 x Annual No. of payments x Interest (Total No. of Payments + 1) x Principal A company has a choice between taking a $230,000 loan or accepting a cash discount terms 3/18, net 75. A creditor will loan the money for 1 year at an interest cost of $12,200. The creditor requires a 20% compensating balance. However, the company ordinarily maintains 50% of that requirement. If the company takes the loan, it must make 12 equal monthly payments to retire the obligation. Required: Which do you think is the better option? Specify your calculations and justify your decision outcome. Assume a 360-day year calendar. Ignore Cost of not taking a cash discount => ERI on an installement loan = Discount% Days in Year 100%-Discount% Final Due Date - Discount Period X 2 x Annual No. of payments x Interest (Total No. of Payments + 1) x Principal

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You must analyze the costs of accepting the cash discount and borrowing the 230000 loan to decide which choice is best for the business Lets first det... View the full answer