Problem:
Boles Corporation needs to raise $500,000 for one year to supply capital to a new store. Boles buys from its suppliers on terms of 3/10, net 90, and it currently pays on Day 10 and takes discounts, but it could forgo discounts, pay on Day 90, and get the needed $500,000 in the form of costly trade credit. Alternatively, Boles could borrow from its bank on a 12-percent discount interest basis.
Required:
Question: What is the EAR on the lower cost of source?
Note: Explain all steps comprehensively.