What would be the effective cost of the bank loan

Reference no: EM13287284

Holiday Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 35; and it currently pays after 5 days and takes discounts. Holiday plans to expand, which will require additional financing. Assume 365 days in year for your calculations.

1. If Holiday decides to forgo discounts, how much additional credit could it obtain? Round your answer to the nearest cent.

2. What would be the nominal cost of that credit?

3. What would be the effective cost of that credit? Round your answer to two decimal places.

4. If the company could get the funds from a bank at a rate of 12%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan?

Reference no: EM13287284

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