Assume that Kohl's needs additional funding for one-year to finance inventory. The Corporation can borrow from a consortium of Bank's at a fixed rate of 3.0% with the interest discounted or pay supplier bills late on day 90 when terms indicate 1/10/net 60. First, estimate the effective cost of the bank loan and the trade credit given terms and late payment projected. Second, briefly identify the benefits and risks of using either source of short-term credit. Finally, indicate how and why the retailer's working capital conversion cycle would differ, if at all, between relying on the bank loan v. paying suppliers late.
This question belongs to Finance and discusses additional funding for one-year to finance inventory for Kohl's corporation.Download Full Solution
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