3). Simple Simon's Bakery purchases supplies on terms of 1.2/10, net 25. If Simple Simon's chooses to take t discount offered, it must obtain a bank
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3). Simple Simon's Bakery purchases supplies on terms of 1.2/10, net 25. If Simple Simon's chooses to take t
discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quo
Simple Simon's owner an interest rate of 10.9% on borrowed funds.
a. What is the effective annual cost of trade credit if Simple Simon choose to forgo the discount and pay
day 25? (Hint: Use 365 days for a year).
b. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount?

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a). Effective Cost = [1 + {Discount% / (1 - Discount%)}] [365 / (Normal days - Discount days)] - 1 = [1 + {0.012 /... View the full answer

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