Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Harold Corporation needs to borrow 1,000,000 in order to take a cash discount from its supplier on credit terms 3/10, net 45 . A banker
Harold Corporation needs to borrow 1,000,000 in order to take a cash discount from its supplier on credit terms 3/10, net 45 . A banker will loan the money for 30 days at an interest cost of 28,000. Assume a 360 -day year for your calculations. Instructions: 3.1 What is the effective rate on the bank loan? (5 points) 3.2 How much would it cost (in percentage terms) if Harold did not take the cash discount, but paid the bill in 45 days instead of 10 days? ( 5 points) 3.3 Should Harold borrow the money to take the discount? Explain. (5 points) 3.4 If another banker requires a 15 percent compensating balance, how much must Harold borrow to end up with 1,000,000 ? ( 5 points) 3.5 What would be the effective interest rate in question 3.4 if the interest charge for 30 days were 21,000 ? Since there are no funds to count against the compensating balance requirement, should Harold borrow with the 15 percent compensating balance? ( 5 points)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started