Hand-to-Mouth is currently cash-constrained, and must make a decision about whether to delay paying one of its
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Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $12,000 in one month.
Alternative B: Borrow the money from Bank A, which has offered to lend the firm $11,712 for one month at an APR (compounded monthly) of 12.1%. The bank will require a (no-interest) compensating balance of 4.8% of the face value of the loan and will charge a $95 loan origination fee, which means Hand-to-Mouth must borrow even more than the $11,712.
Alternative C: Borrow the money from Bank B, which has offered to lend the firm $11,712 for one month at an APR of 15.3% (compounded monthly). The loan has 1.2% loan origination fee.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Related Book For
Cost Management Measuring, Monitoring And Motivating Performance
ISBN: 1601
3rd Canadian Edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook
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