Consider this case: Wizard Corp. needs to take out a one-year bank loan of $400,000 and has been offered several different terms. One bank has offered a loan with 9% simple interest that requires monthly payments. The loan principal will be paid back at the end of the year. Based on a 360-day year, what will be the monthly payment for June? (Hint: Remember that June has 30 days.) $2,400.00 $3,000.00 O $3,600.00 O $3,450.00 Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. What is the monthly payment on this add-on interest loan? hort-term financing through bank loans onsider this case: Wizard Corp. needs to take out a one-year bank loan of $400,000 and has been offered several different terms. One bank has offered a loan with 9% simple interest that requires monthly payments. The loan principal will be paid back at the end of the year. ased on a 360-day year, what will be the monthly payment for June? (Hint: Remember that June hos 30 days.) $2,400.00 $3,000.00 O $3,600.00 O $3,450.00 other bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. What is the monthly payment on this add-on interest an? Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. What is the monthly payment on this add-on interest loan? O $35,333.33 O $40,633.33 O $28,266.66 O $42,400.00 Choose the answer that best evaluates the following statement: A bank loan omcer has been approached by a start-up company that needs a five-year loan to purchase the equipment for its first project. The project will have a life of five years. At the end of five years, the equipment will be worthless. The founders of the company told the loan icer that they would be willing to pay a much higher interest rate on a simple interest loan rather than contracting to an add-on interest loan The loan officer should offer the company a simple interest loan. The bank will make more money in the long run, because it can charge a much higher interest rate. The loan officer should offer the company an add-on interest loon because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life. Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth related financing needs, or the firm may not be able to always generate enough cash now to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term Tinancing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing. Consider this case: Short-term loans usually have a lower cost than long-term loans. Identify whether the preceding statement is true or false. This statement is true and an advantage of short-term financing This statement is false and a disadvantage of short-term financing Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source Identify whether the preceding statement is true or false, This statement is true and an advantage of short-term financing. This statement is false and a disadvantage of short-term financing. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source Short-Term Financing Source Description A formal, committed line of credit extended by a bank or other lending institution Unsecured, short-term promissory notes issued by large firms in denominations of $100,000 or more Save & Continue Continue without saving
