Myrdal Boots can borrow from its bank at 12% to take a cash discount. The terms of the cash discount are 3/10, net 90. Myrdal Boots should borrow from the bank to take the discount.

Question

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The effective interest rate of the cash discount is approximately 18.36%. Since Myrdal Boots can borrow from its bank at 12%, it is beneficial for them to borrow and take the cash discount, as they would still save money even with the interest expense factored in.

Myrdal Boots Can Borrow from Its Bank at 12% to Take