Assignment:
Gordon Ltd., a construction company needs $1,500,000 to take a cash discount of 2/10, net. A banker will loan the money for 60 days and charge interest of $24,300.
a. What is the annual rate on the bank loan?
b. How much would it cost (in percentage terms) if Gordon Ltd. did not take the cash discount and paid the bill in 70 days instead of 10 days.
c. Should Gordon Ltd. borrow the money to take the discount?
d. If the banker required a 20% compensating balance, how much must Gordon Ltd. borrow to end up with $1,500,000?