Neveready Flashlights Inc. needs $359,000 to take a cash discount of 3/18, net 72. A banker will
Question:
Neveready Flashlights Inc. needs $359,000 to take a cash discount of 3/18, net 72. A banker will loan the money for 54 days at an interest cost of $14,500. |
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 the firm did not take the cash discount but paid the bill in 72 days instead of 18 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 the firm borrow the money to take the discount? | ||
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d. | If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $359,000? |
Amount to be borrowed | $ |
e-1. | What would be the effective interest rate in partdif the interest charge for 54 days were $15,900?(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 the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.) | ||
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