nsert Design Layout References Mailings Review View Help Acrobat HD P E nt Paragraph Styles Editing Adobe Dictate Sensitivity Acrobat Editor Voice Sensitivity Editor 6. Raymond Company buys from its suppliers on credit terms of 2/10 net 60. It has been forgoing the cash discount offered and taking 60 days to pay its suppliers. Mr Pearson, the Finance Vice President, has suggested that the company takes the cash discount offered by the suppliers. He proposes that the company borrows from the bank using a discount loan at a stated interest rate of 10% per annum, compounded semi- annually. (i) Compute the cost of forgoing the cash discount. 365 20. Effective Annual Rate of trade credit = (1 + 40-1 80 = 6.66132 =66.61% (2dp) I Effective annual rate on a discount loan = (1/(1-(10/2))^2-1 (ii) Do you agree with Mr Pearson's proposal above? I agree Mr Pearson's proposal. As the opportunity cost is higher than hank loan 708 words Focus PA BC