Problem 5 Ready Flashlights, Inc. needs P300,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at an interest cost of PS,500. Required: a. What is the cffective rate on the bank loan? b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 70 days instead of 10 days? c. Should the firm borrow the money to take the discount?
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- Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. a. The nominal annual rate on the loan was 11.25%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?Problem D: Effective cost of Short‐term Loan:ABC would need cash of P5,000,000. Several banks offered different loan conditions. One of the loans has a term of 6 months,interest of 5%, and compensating balance of P50,000Required:11. How much should the face value of the loan be?12. How much is the simple effective annual interest?Problem D: Effective cost of Short‐term Loan:ABC would need cash of P5,000,000. Several banks offered different loan conditions. One of the loans has a term of 6 months,interest of 5%, and compensating balance of P50,000Required:1. How much should the face value of the loan be?2. How much is the simple effective annual interest?Problem E: Effective cost of Short‐term Loan: ABC will be acquiring a P4,000,000 loan from XYZ Bank. 13. The detail are 6‐month term, 3% interest, P40,000 bank chargeand P50,000 compensating balance.Required:1. How much is the compound effective annual interest?
- on a a discount basis. Problem 7 COST OF TRADE CREDIT AND BANK LOAN Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60, and it currently pays after 5 days and takes discounts. Lamar plans to expand. which will require additional financing. a) If Lamar decides to forgo discounts how much additional credit could it get and what would be the nominal and effective cost of that credit? P) J the company could get the funds from a bank at a rate of 10%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? (C) Should Lamar use bank debt or additional trade credit? Explain. Page 121 of 161Neveready Flashlights Inc. needs $340,000 to take a cash discount of 3/17, net 72. A banker will lend the money for 55 days at an interest cost of $10,400. Question 1 What is the effective rate on the bank loan? Group of answer choices 20.04% 3.06% 4.25% 10% Question 2 How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 72 days instead of 17 days? Group of answer choices 3.0% 97% 6.55% 15% Question 3 Should the firm borrow the money to take the discount? Group of answer choices No Yes I don't know Sometimes Question 4 If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $340,000? Group of answer choices $10,000 $1,000 $100,000 $425,000 Question 5 What would be the effective interest rate in part d if the interest charge for 55 days were $13,000? Should the firm borrow…Question 11 To purchase a new car, you borrow $20,000. The bank offers a 6-year loan at an interest rate of 3.25% compounded annually. If you make only one payment at the end of the loan period, repaying the principal and interest: Which time value factor should be used to solve this problem? O PWCAF O USCAF O SPCAF O USPWF
- Problem 6 INTEREST COST. Ajax Corporation is deciding whích of two banks to borrow from on a 1-year basis. Bank A charges an 18 percent interest rate payable at maturity. Bank B charges a 17 percent intereșt rate on a discount basis. Which loan is cheaper? Problem 75. If this loan had been made on a 10% add-on basis payable in 12 end-of-month installments, that would be the monthly payments? What is the annual percentage rate? The effective annual rate? ($45,833.33, 17.97%, 19.53%) E • How does the cost of costly trade credit generally compare with the cost of shortterm bank loans? L Focus F9 F10 F11 F12 8 98 Brampton Truck Parts needs $652,000 to take a cash discount of 2.50/10, net 70. A banker will loan the money for 60 days at an interest cost of $14,100. a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate b. How much would it cost (in percentage terms) if Brampton did not take the cash discount and paid the bill in 70 days instead of 10 days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount c. Should Burt's borrow the money to take the discount? Yes No % d. If the banker requires a 10 percent compensating balance, how much must Burt's borrow to end up with the $652,000? (Round the final answer to the nearest whole dollar.) Amount to be borrowed $ Annual rate % e-1. What would be the interest rate in part d if the interest charge for 60 days were $25,000? (Use 365 days in a…
- Problem E: Effective cost of Short‐term Loan:ABC will be acquiring a P4,000,000 loan from XYZ Bank. 13. The detail are 6‐month term, 3% interest, P40,000 bank chargeand P50,000 compensating balance.Required:13. How much is the compound effective annual interest?QUESTION 5 A company can issue a 45-day $10 million commercial paper at a rate of 4.50%. It can reduce the rate to 4.35% if it is backed by a standby letter of credit (SBLC). A bank is willing to issue the SBLC for a fee of 10 basis points. The following is true: The fee for issuing the SBLC is $10,000 The net savings to the issuer is $1,250 The amount received by the issuer for the commercial paper without an SBLC is $9,945,625. The difference in the amount received by the issuer with and without the SBLC is $1,875. QUESTION 6 The following is true about loan…Question Help A bank lends some money to a business. The business will pay the bank a single payment of $183,000 in ten years time. How much greater is the present value (PV) of this payment if the interest rate is 6% rather than 5%?