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Chapter 3: 2BP (page 249)

Regis Clothiers can borrow from its bank at 17 percent to take a cash discount. The terms of the cash discount are 3/19, net 45. Should the firm borrow the funds?

Short Answer

Expert verified

The firm should borrow the funds.

Step by step solution

01

Calculation of cost of not taking discount

The cost of not taking the discount is 42.8%.

Costofnottakingdiscount=Discount%100%-Discount%脳360Finalduedate-Discountperiod=3%97%脳36045-19=42.8%

02

Decision regarding the funds to be borrowed

The cost of borrowing is 17% and the cost of not taking the cash discount is 42.8%. The firm should borrow the funds for availing the cash discount as the cost of borrowing is less than the cost of not taking cash discount.

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