Case Scenario: CURRENT LIABILITIES MANAGEMENT
Problem I: Albert Ltd has purchases of $1,000,000 on credit. The supplier has offered Albert terms of 1.75/5, net 30. The current interest rate on a bank overdraft is 12%. What is the cost of giving up the cash discount? Should the company take it up?
Problem II: Data#3 has obtained a $10,000 90-day bank loan at an annual interest rate of 8%, payable at maturity.
a) How much interest in dollars will the firm pay on the 90 day loan?
b) Find the effective cost of the loan in percentage for the 90 days.
c) Annualise your finding in b) to find the effective annual rate of interest for this loan.