Exercise - Inventory financing costs
Nichole Jordan comes to you for advice. She has just purchased a large amount of inventory with the terms 2/10, n/30. The amount of the invoice is $270,000. She is currently short of cash but has decent credit. She can borrow the money needed to settle the account payable at an annual interest rate of 7 percent. Nichole is sure she will have the necessary cash by the due date of the invoice but not by the last day of the discount period.
Required -
a. Convert the discount rate into an annual interest rate. (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.
b. Make a recommendation regarding whether Jordan should borrow the money and pay off the account payable within the discount period.
Jordan should not borrow the money and pay off the account payable within the discount period. Jordan should borrow the money and pay off the account payable within the discount period. References eBook & Resources.