13)

Neveready Flashlights Inc. needs $346,000 to take a cash discount of 2/12, net 74. A banker will loan the money for 62 days at an interest cost of $10,500.

a.	What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Effective rate of interest

%

b.	How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 74 days instead of 12 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Cost of not taking a cash discount

%

c.	Should the firm borrow the money to take the discount?
	No Yes

d.	If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $346,000?

Amount to be borrowed

$

e-1.	What would be the effective interest rate in part d if the interest charge for 62 days were $12,300? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Effective rate of interest

%

e-2.	Should the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.)
	Yes No