Brand Advertising Is Offered a 3/10 Net 40 Trade Discount

question 17

Essay

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 60 days.Since it doesn't have money on hand to take advantage of the discount,it tries to negotiate a loan with Second Canadian Bank.The amount of $375,000 with a 15% compensating balance and a $5,500 interest charge has been negotiated for the month of May.Brand already maintains a $16,250 balance at the bank.Compute the annual rate of interest on the loan,and the cost of not taking the discount.Which one should Brand take?

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Definitions:

Protective Tariff

A tax imposed on imported goods to shield domestic industries from foreign competition by making imported goods more expensive.

Import Quota

A government-imposed limit on the quantity or value of goods that can be imported into a country, used to protect domestic industries and manage trade balances.

United States

A country located in North America, comprised of 50 states, known for its significant economic, cultural, and political influence globally.

Switzerland

A landlocked country in Central Europe known for its high standard of living, neutrality, and picturesque landscapes.