Every 15 days a company receives P10,000 worth of raw materials from its suppliers. The credit terms for these purchases are 2/15, net 30, and payment is made on the 30th day after each delivery. Thus, the company is considering a 1-year bank loan for P9,800 (98% of the invoice amount). If the effective annual interest rate on this loan is 12%, what will be the net peso savings over the year by borrowing and then taking the discount on the materials?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
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Every 15 days a company receives P10,000 worth of raw materials from its suppliers. The credit terms for these purchases are 2/15, net 30, and payment is made on the 30th day after each delivery. Thus, the company is considering a 1-year bank loan for P9,800 (98% of the invoice amount). If the effective annual interest rate on this loan is 12%, what will be the net peso savings over the year by borrowing and then taking the discount on the materials?

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