Question
Max Powers, Vice President for National Lending, has instructed the computer programmer to use a 365-day year to calculate interest expense on the company's liabilities,
Max Powers, Vice President for National Lending, has instructed the computer programmer to use a 365-day year to calculate interest expense on the company's liabilities, which are loans they have taken out. He has also instructed the programmer to use a 360-day year to calculate interest revenue on assets, which are the loans they have given out to clients. 1. What are the financial ramifications of using a 365-day year opposed to a 360-day year on both the interest expense and interest revenue? 2. Which method should be used? 3. Can both methods be used? 4. Discuss whether Max is behaving in a professional manner. 5. Is there a method that banks normally use on loans?
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