Compute effective interest rate

Reference no: EM1359173

32. Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks: First City Bank will loan the funds for 20 days at a cost of $400; Upstart Bank offers a discounted loan for 20 days at a cost of $320.

a) What is the cost of failing to take the discount?
b) What is the effective interest rate on each of the loans?
c) Which alternative should Slipshod follow?

Reference no: EM1359173

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