6. A pawnshop will lend $3,750 for 45 days at a cost of $35 interest. What is the effective rate of interest? (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 _________________ %

7. Your bank will lend you $2,100 for 45 days at a cost of $30 interest. What is your effective rate of interest? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Effective rate ______________%

8. The Reynolds Corporation buys from its suppliers on terms of 3/17, net 45. Reynolds has not been utilizing the discounts offered and has been taking 45 days to pay its bills. Ms. Duke, Reynolds Corporation's vice president, has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of 16 percent. The bank requires a 20 percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement. a. Calculate the cost of not taking a cash discount. (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 _________________ %

b. What is the effective rate of interest 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 _________________ %

c. Do you agree with Duke's proposal? Yes or no ?

9. Maxim Air Filters Inc. plans to borrow $300,000 for one year. Northeast National Bank will lend the money at 10 percent interest and requires a compensating balance of 20 percent. What is the effective rate of interest? (Round your answer to 2 decimal places.)

Effective rate of interest _________________ %

10. Neveready Flashlights Inc. needs $324,000 to take a cash discount of 2/15, net 73. A banker will loan the money for 58 days at an interest cost of $11,100. 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 73 days instead of 15 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 or yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $324,000?

e-1. What would be the effective interest rate in part d if the interest charge for 58 days were $16,700? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

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