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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 annual interest rate on each of the loans?
C)Which alternative should Slipshod follow?
Operating Income
The profit realized from a business's core operations, excluding deductions of interest and taxes.
Accrual-Based
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Mutual Ownership
A form of ownership where an institution, such as a mutual insurance company or building society, is owned by its members or policyholders.
Direct Control
The ability of an entity to influence the operations and financial decisions of another entity directly, often through ownership of voting shares.
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