Question
Burts Department Store needs $638,000 to take a cash discount of 1.50/15, net 65. A banker will loan the money for 50 days at an
Burts Department Store needs $638,000 to take a cash discount of 1.50/15, net 65. A banker will loan the money for 50 days at an interest cost of $16,800.
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 Burts did not take the cash discount and paid the bill in 65 days instead of 15 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 Burts borrow the money to take the discount?
multiple choice 1
-
Yes
-
No
d. If the banker requires a 10 percent compensating balance, how much must Burts borrow to end up with the $638,000? (Round the final answer to the nearest whole dollar.)
Amount to be borrowed $
e-1. What would be the interest rate in part d if the interest charge for 50 days were $21,500? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Annual rate %
e-2. Should Burts borrow with the 10 percent compensating balance? (There are no funds to count against the compensating balance requirement.)
multiple choice 2
-
No
-
Yes
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