Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Neveready Flashlights Inc. needs $340,000 to take a cash discount of 2/10, net 60. A banker will loan the money for 50 days at an

Neveready Flashlights Inc. needs $340,000 to take a cash discount of 2/10, net 60. A banker will loan the money for 50 days at an interest cost of $5,900.

a.What is the annual rate on the bank loan?(Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Annual rate12.67

12.67 Correct

%

b.How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 60 days instead of 10 days?(Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of not taking a cash discount14.90

14.90 Correct

%

c.Should the firm borrow the money to take the discount?

  • No
  • Yes

d.If the banker requires a 14 percent compensating balance, how much must the firm borrow to end up with the $340,000?(Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Amount to be borrowed$395348.84

395348.84 Correct

e-1.What would be the effective interest rate in partdif the interest charge for 50 days were $7,250?(Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Annual rate

Not attempted

%

e-2.Should the firm borrow with the 19 percent compensating balance? (The firm has no funds to count against the compensating balance requirement.)

  • Yes
  • No

Hello i am basically finished this practice question im just stuck on question e.1 i need help finding the annual rate ive tried 3 different formulas but cant seem to get to the correct answer.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Forecasting

Authors: John E. Hanke, Dean Wichern

9th edition

132301202, 978-0132301206

More Books

Students also viewed these Finance questions