I need help for the question, please solve accurately. Thank you. Bill Norman co

Question

I need help for the question, please solve accurately. Thank you.

Bill Norman comes to you for advice. He has just purchased a large amount of inventory with the terms 4/20, n/60. The amount of the invoice is $334,000. He is currently short of cash but has decent credit. He can borrow the money needed to settle the account payable at an annual interest rate of 11 percent. Bill is sure he 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 intermediate calculations. Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).) b. Make a recommendation regarding whether Norman should borrow the money and pay off the account payable within the discount period. a. Annual rate | Should Norman borrow the money and pay off the account payable within the discount period?

Explanation / Answer

Ans 6 a) Periodic Discount rate(P)=4%

         No of Periods(m) = 365/20= 18.25

Annual Interest Rate=PxM= 4 x 18.25 =73%

b) Yes

Solution:

Case 1:If Bill make the payment immediately then the amount he need to borrow= $(334000 x96%)= $ 320640

Amount of payment he need to make at end of 60 days along with the interest on borrowing

= $ 320640 + 320640 x 11% x 60/365 Days

= $ 326438

Case 2: if he don't borrow and make payment on due date, then the amount of outflow

= $ 334000

So he should borrow and make payment.

Ans 6 b:

Amount of book inventory= Purchase- Cost of Sales = $ 31000-18100 = $12900

Actual Inventory = $ 12700

Difference= $ 12900-12700 = $ 200

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.