Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker will loan the money for 65 days at an interest cost of $12,100.

(Please review the following and assist in answering the highlighted portion)

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.)

20.95%

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 76 days instead of 11 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

11.30%

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

	No
	Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $345,000?

Amount to be borrowed

$431,250

%

e-1. What would be the effective interest rate in part d if the interest charge for 65 days were $11,400? (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 the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.)

Yes

No

Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker will loan the money for 65 days at an interest cost of $12,100.

(Please review the following and assist in answering the highlighted portion)

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.)

20.95%

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 76 days instead of 11 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

11.30%

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

	No
	Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $345,000?

Amount to be borrowed

$431,250

%

e-1. What would be the effective interest rate in part d if the interest charge for 65 days were $11,400? (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 the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.)

	Yes
	No

Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker will loan the money for 65 days at an interest cost of $12,100.

(Please review the following and assist in answering the highlighted portion)

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.)

20.95%

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 76 days instead of 11 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

11.30%

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

	No
	Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $345,000?

Amount to be borrowed

$431,250

%

e-1. What would be the effective interest rate in part d if the interest charge for 65 days were $11,400? (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 the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.)

	Yes
	No

Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker will loan the money for 65 days at an interest cost of $12,100.

(Please review the following and assist in answering the highlighted portion)

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.)

20.95%

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 76 days instead of 11 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

11.30%

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

	No
	Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $345,000?

Amount to be borrowed

$431,250

%

e-1. What would be the effective interest rate in part d if the interest charge for 65 days were $11,400? (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 the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.)

	Yes
	No