Should Simon’s enter the loan agreement with the bank and begin taking the discount? (Use 365 days for a year), question help

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1. Simon’s Bakery purchases supplies on terms of 1.2/10, net 26. If Simon’s chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simon’s owner an interest rate of 10.5% on borrowed funds. Should Simon’s enter the loan agreement with the bank and begin taking the discount? (Use 365 days for a year)

Simple Simon’s can earn an effective rate of ___%

2. Your firm purchases from its supplier on terms of 2.1/15, net 40.

a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40?

b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50?

 

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