Let's break down the main questions step by step: --- ## Step 1: Accounts Payable Balances ### **A. If Stewart Takes Discounts:** - **Discount terms mean:** Stewart pays in 10 days, not 30. - **Accounts payable balance:** Will equal **10 days' purchases**. **Explanation:** Accounts payable is a function of how many days' purchases are unpaid. If Stewart pays in 10 days, accounts payable will represent 10 days of purchases. --- ### **B. If Stewart Does Not Take Discounts:** - **Pays in 30 days** - **Accounts payable balance:** Will equal **30 days' purchases**. **Explanation:** If Stewart continues paying in 30 days, the accounts payable balance will reflect 30 days' worth of purchases. --- ### **Final Answers (Step 1):** - **If discounts taken:** Accounts payable = 10 days’ purchases. - **If no discounts:** Accounts payable = 30 days’ purchases. --- ## Step 2: Bank Loan Requirements ### **A. If Stewart Takes Discounts:** - **Needs to reduce accounts payable from 30 days’ purchases to 10 days’ purchases.** - **Amount to borrow:** \( \text{Loan needed} = \text{Current accounts payable} - \text{New accounts payable after discount} \) \( = \text{30 days' purchases} - \text{10 days' purchases} = \text{20 days' purchases} \) **But**: The bank requires a **15% compensating balance**. - **Let \( X \) = amount Stewart needs to borrow** - **Stewart receives:** \( X \times (1 - .15) \) - Set this equal to the needed funds: \( X \times .85 = 20 \) days’ purchases \( X = \frac{20}{.85} \) days’ purchases **Explanation:** Because Stewart can only use 85% of the loan (after the compensating balance), it must borrow more than 20 days' purchases. --- ### **B. If Stewart Does Not Take Discounts:** - **Only needs enough to become current (i.e., no reduction in payables needed).** **Loan needed = $**. **Explanation:** If Stewart pays in 30 days (status quo), no need to borrow as no reduction in accounts payable is necessary. --- ### **Final Answers (Step 2):** - **If discounts taken:** **Bank loan required = \( \frac{20}{.85} = 23.53 \) days’ purchases**. - **If no discounts:** **Bank loan required = $**. --- ## **Summary Table** | Scenario | Accounts Payable | Bank Loan Required | |---------------------------|------------------|----------------------| | Takes discounts (10 days) | 10 days | 23.53 days purchases | | No discounts (30 days) | 30 days | $ | --- Let me know if you'd like to proceed with the next questions (such as nominal/effective cost calculations or pro forma balance sheet)!