BUS 201 Corporate Finance Homework #2, June 1, 2016

Multiple Choice

9. Ms. Smith borrowed $2,000 at an 8% stated rate of interest and was to pay back the loan in 12 monthly payments. What is her effective rate of interest using the installment loan formula? A. 10.5% B. 14.8% C.18.9% D.22.0%

11. ABC Company can borrow from its bank at 12% to take a cash discount. The terms of the cash discount are 2/10, net 50. ABC Company should: Borrow from the bank to take the cash discount Not borrow from the bank and not take the cash discount

SHOW YOUR WORK

14. If a firm is given trade credit terms of 2/10, net 30, then the cost of the firm failing to take the discount is:

A) 2% B) 30% C) 36.7% D 10%