The Laser Company needs to finance an increase in its working capital for the coming year. Laser
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The Laser Company needs to finance an increase in its working capital for the coming year. Laser is reviewing the following three options: (1) The firm can borrow from its bank on a simple interest basis for one year at 13 percent. (2) It can borrow on a 3-month, but renewable, loan at a 12 percent nominal rate. The loan is a simple interest loan, completely paid off at the end of each quarter, then renewed for another quarter. (3) The firm can increase its accounts payable by not taking discounts. Laser buys on credit terms of 1/30, net 60 days. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?
Related Book For
Introduction to Corporate Finance What Companies Do
ISBN: 978-1111222284
3rd edition
Authors: John Graham, Scott Smart
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