Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. If Lamar decides to forgo discounts, how much additional credit could it get and what would be the nominal and effective cost of that credit? If the company could get the funds from a bank at a rate of 10%, interest paid monthly, based on a 365-day, what would be the effective cost of the bank loan, and should Lamar use bank debt or additional trade credit? Explain.

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Jarrod RobelLv2

28 Sep 2019

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Please work the problem fully.

Cost of Trade Credit and Bank Loan

Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 50; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculations.

a. If Lamar decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
$ __________

b. What would be the nominal cost of that credit? Round your answer to two decimal places.

___________%

c. What would be the effective cost of that credit? Round your answer to two decimal places.

___________ %

d. If the company could get the funds from a bank at a rate of 7%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Round your answer to two decimal places.
___________%

e. Should Lamar use bank debt or additional trade credit?
Bank debt or Addtional trade credit

harlequinpug608

Cost of Trade Credit and Bank Loan PLEASE ROUND CORRECTLY AND FOLLOW THE DIRECTIONS IN THE PROBLEM THANKS

If Lamar decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
$

What would be the nominal cost of that credit? Round your answer to two decimal places.
%

What would be the effective cost of that credit? Round your answer to two decimal places.
%

If the company could get the funds from a bank at a rate of 8%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Round your answer to two decimal places.
%

Should Lamar use bank debt or additional trade credit?

Problem 15-3
Cost of Trade Credit and Bank Loan

Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 30; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculations.

What would be the nominal cost of that credit? Round your answer to two decimal places.
%

What would be the effective cost of that credit? Round your answer to two decimal places.
%

If the company could get the funds from a bank at a rate of 12%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Round your answer to two decimal places.
%

Should Lamar use bank debt or additional trade credit?

pinkalligator798

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