1. (1) Meghan Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $1340000 that it will accept as collateral. The banks terms include a lending rate set at prime3% and a 2% commission charge. The prime rate currently is 8.5%.

a. The bank will adjust the accounts by 40% for returns and allowances. It then will lend up to 70 % of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?

b. What is Scientific Softwares effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months? (Assume that the prime rate remains at 8.5% during the life of the loan.

(2) Explain the three principal motives for holding cash.