Brand advertising is offered a 3/10 net 40 trade discount by its supplier. In the past Brand has been able to get away with paying for supplies on credit in 60days. since it doesnt have money on hand to take advantage of discount, it tries to negotiate a loan with portland state bank. The amount of 375000 with 15% compensating balance and 5500 interest charge has been negotiated for the month of May. Brand already maintains a 16250 balance at the bank. Compute the effective rate of interest on the loan, and the cost of not taking the discount. Should Brand take advantage of the cash discount?

Question

Brand advertising is offered a 3/10 net 40 trade discount by its supplier. In the past Brand has been able to get away with paying for supplies on credit in 60days. since it doesnt have money  on hand to take advantage of discount, it tries to negotiate a loan with portland state bank. The amount of 375000 with 15% compensating balance and 5500 interest charge has been negotiated for the month of May. Brand already maintains a 16250 balance at the bank. Compute the effective rate of interest on the loan, and the cost of not taking the discount. Should Brand take advantage of the cash discount?