1. A firm purchases materials on terms of 2/10, net 70 and it can borrow the funds from a bank at an APR of 16%. Should the firm use the bank loan by taking the discount or the full credit period by giving up the discount?
2. A firm has $5 million sales and $2 million fixed assets. The firm’s fixed assets are operating at 70% of capacity.
a) If the firm’s fixed assets are fully operated, what level of sales can the firm achieve (full capacity sales)?
b) Find the firm’s target fixed assets to Sales ratio.
c) If the firm’s sales increase by 50%, how large of an increase in fixed assets will the firm need to meet its target fixed assets to Sales ratio?
(Please show all your works)