Bright Flashlight Company

Interest is the amount unremarkably paid on the use of the principal amount of money loaned. telling interest rate is the actual annual interest rate that accrues, afterwards taking into consideration the effects of compounding, when compounding occurs more than once per year (Investorwords, 2007). If Bright common mullein connection pass on loan $300,000 from the bank for 60 days, the effective interest rate on the bank loan is 11% for a year or 1. 83% for the 60-days period.Opportunity cost is the cost deviation of one alternative action over an opposite. If Bright Flashlight Company will not pay their purchases amounting to $300,000 within the 10 day period, they will lose the opportunity to con the 10% discount amounting to $6,000. On the other hand, if they do not pay within the discount period, they also engender the opportunity to use the $300,000 for other ventures within the credit term give by the supplier.Based on the given data, I think that Bright Flashlight C ompany should borrow the money from the bank in order to take the discount on their purchases. The guild can take the 2% capital discount in 10 days amounting to $6,000 and pay $5,500 interest on the bank loan of $300,000 after 60 days. The difference of $500 is yet favorable for Bright Flashlight Company even if they pay their purchases after 70 days. If the banker requires a 20% compensating balance, Bright Flashlight Company must borrow $360,000 from the bank.The difference between the $360,000 loan and $300,000 needed fund of the company amounting to $60,000 (20% of $300,000) is the banks compensating balance. However, if this is the case, Bright Flashlight Company should not loan from the bank any longer since interest on the loan will increase because of the increase on the total principal amount of the loan. Reference Investorwords (2007). Retrieved February 10, 2007 from http//www. investorwords. com/1661/effective_annual_interest_rate. html