Harper Engine Company needs $617,000 to take a cash discount of 2.50/10, net 90. A banker will loan the money for 80 days at an interest cost of $14,600.

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 Harper did not take the cash discount but paid the bill in 90 days instead of 10 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 Harper borrow the money to take the discount?

	Yes
	No

d.	If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $617,000? (Round your answer to 2 decimal places.)

Amount to be borrowed

$

e-1.	What would be the effective interest rate in part d if the interest charge for 80 days were $17,900? (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

%

e-2.

Should Harper borrow with the 10 percent compensating balance requirement? (There are no funds to count against the compensating balance requirement.)

	No
	Yes

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