Please see the attachment and answer all questions

1. Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not round intermediate calculations. Input your final answers as a percent rounded to 2 decimal places.) a. b. c. d. e. 2. 3/20, net % 2/18, net 55 % 3/18, net 50 % 3/19, net 170 % A pawnshop will lend $5,750 for 45 days at a cost of $25 interest. What is the effective rate of interest? (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 % 3. Mary Ott is going to borrow $5,200 for 75 days and pay $236 interest. What is the effective rate of interest if the loan is discounted? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Effective rate on a discounted loan % 4. Dr. Ruth is going to borrow $8,200 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 9 percent and LIBOR 2.5 percent less. Also assume there will be a $50 transaction fee with LIBOR (this amount must be added to the interest cost with LIBOR). a. What is the effective interest rate on the LIBOR loan?(Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Effective interest rate % b. Which loan has the lower effective interest cost? LIBOR Prime 5. Talmud Book Company borrows $18,100 for 45 days at 12 percent interest. What is the dollar cost of the loan? (Use a 360-day year. Do not round intermediate calculations and round your final answer to 2 decimal places.) Cost of loan 6. McGriff Dog Food Company normally takes 21 days to pay for average daily credit purchases of $9,640. Its average daily sales are $10,550, and it collects accounts in 26 days. a. What is its net credit position? Net credit position b-1. If the firm extends its average payment period from 21 days to 37 days (and all else remains the same), what is the firm's new net credit position? (Negative amount should be indicated by a minus sign.) Net credit position b-2. Has the firm improved its cash flow? Yes No 7. Carey Company is borrowing $325,000 for one year at 11.5 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed Compensating balance). a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest 8. % Your company plans to borrow $6 million for 12 months, and your banker gives you a stated rate of 23 percent interest. Calculate the effective rate of interest for the following types of loans. a. Simple 23 percent interest with a compensating balance of 20 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % b. Discounted interest (with no compensating balance). (Input your answer as percent rounded to 2 decimal places.) Effective rate of interest % c. An installment loan (12 payments). (Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % d. Discounted interest with a compensating balance of 10 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % 9. If you borrow $7,900 at $520 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places.) a. b. c. d. Annual payment Semiannual payment Quarterly payments Monthly payments Effective rate of interest % % % % 10. Mr. Hugh Warner is a very cautious businessman. His supplier offers trade credit terms of 3/14, net 70. Mr. Warner never takes the discount offered, but he pays his suppliers in 60 days rather than the 70 days allowed so he is sure the payments are never late. What is Mr. Warner's cost of not taking the cash discount? (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 % 11. The Reynolds Corporation buys from its suppliers on terms of 3/17, net 45. Reynolds has not been utilizing the discounts offered and has been taking 45 days to pay its bills. Mr. Duke, Reynolds Corporation vice president, has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of 16 percent. The bank requires a 20 percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement. a. Calculate the cost of not taking a cash discount. (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 % b. What is the effective rate of interest 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 c. Do you agree with Duke's proposal? % Yes No 12. Neveready Flashlights Inc. needs $324,000 to take a cash discount of 2/15, net 73. A banker will loan the money for 58 days at an interest cost of $11,100. 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 73 days instead of 15 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? No Yes d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $324,000? amount to be borrowed % e-1. What would be the effective interest rate in part d if the interest charge for 58 days were $16,700? (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 13. Summit Record Company is negotiating with two banks for a $151,000 loan. Fidelity Bank requires a compensating balance of 28 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 14 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent. Compensating balances will be subtracted from the $151,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of interest Fidelity Bank % SW Bank % a-2. Which loan should Summit accept? Southwest Bank Fidelity Bank b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $42,280 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest Fidelity Bank SW Bank % % c. Does your choice of banks change if the assumption in part b is correct? Yes No 14. Charming Paper Company sells to the 12 accounts listed here. Account A B C D E F G H I J K L Receivable Balance Outstanding $ 63,400 165,000 77,300 21,600 50,000 297,000 32,200 349,000 40,100 98,500 229,000 63,000 Average Age of the Account Over the Last Year 29 43 12 55 42 38 26 69 34 50 23 31 Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan. The current prime rate is 16.50 percent, and Capital charges 4.50 percent over prime to Charming as its annual loan rate. a. Determine the maximum loan for which Charming Paper Company could qualify. Maximum loan amount? b. Determine how much one month's interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Interest expense? 15. The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $126,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 14.30 percent. If they increase to 15.50 percent, assume the value of the contracts will go down by 15 percent. Also if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $99,000. This expense, of course, will be separate from the futures contracts. a. What will be the profit or loss on the futures contract if interest rates increase to 15.50 percent by December when the contract is closed out? ______on future contracts______ b-1. After considering the hedging, what is the net cost to the firm of the increased interest expense of $99,000? Net cost? b-2. What percent of this $99,000 cost did the treasurer effectively hedge away? (Input your answer as a percent rounded to 2 decimal places.) Percentage hedged away % c. Indicate whether there would be a profit or loss on the futures contracts if interest rates went down. Loss Profit 16. What is the present value of the following? Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. $7,700 in 9 years at 5 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? b. $16,400 in 7 years at 6 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present Value? c. $25,600 in 14 years at 11 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present Value? 17. If you invest $19,000 today, how much will you have in each of the following instances? Use Appendix A as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. In 10 years at 11 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future value? b. In 16 years at 11 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future value? c. In 19 years at 12 percent? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future value? d. In 25 years at 12 percent (compounded semiannually)? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future Value? 18. Your uncle offers you a choice of $107,000 in 10 years or $40,000 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. If money is discounted at 8 percent, what is the present value of the $107,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? a-2. Which offer should you choose? $107,000 after 10 years $40,000 today 19 Your father offers you a choice of $125,000 in 11 years or $45,500 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. If money is discounted at 8 percent, what is the present value of the $125,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? a-2. Which offer should you choose? $45,500 today $125,000 in 11 years b-1. Now assume the offer is $125,000 in 8 years or $45,500 today. What is the present value of the $125,000 at 8 percent for 8 years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? b-2. Now, which offer should you choose? $45,500 today $125,000 in 8 years 20. How much would you have to invest today to receive the following? Use Appendix B or Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. $16,000 in 6 years at 10 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? b. $20,500 in 18 years at 7 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? c. $8,500 each year for 17 years at 8 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? d. $58,000 each year for 30 years at 10 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value? 21. At a growth (interest) rate of 15 percent annually, how long will it take for a sum to double? To triple? Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Time needed to double _____ years Time needed to triple _______years 22. Determine the amount of money in a savings account at the end of 3 years, given an initial deposit of $4,000 and an annual interest rate of 4 percent when interest is compounded: Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) a. Annually b. Semiannual c. Quarterly Future Vale _________ __________ ___________ 23. Annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due). What is the future value of a 18-year annuity of $2,000 per period where payments come at the beginning of each period? The interest rate is 5 percent. Use Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. To find the future value of an annuity due when using the Appendix tables, add 1 to n and subtract 1 from the tabular value. For example, to find the future value of a $100 payment at the beginning of each period for five periods at 10 percent, go to Appendix C for n = 6 and i = 10 percent. Look up the value of 7.716 and subtract 1 from it for an answer of 6.716 or $671.60 ($100 6.716). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Future value? 24. Your grandfather has offered you a choice of one of the three following alternatives: $15,000 now; $8,000 a year for six years; or $106,000 at the end of six years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. Assuming you could earn 11 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) $15,000 Present Value ___________ $8,000 $106,000 ___________ ___________ a-2. Which alternative should you choose? $106,000 received at end of six years $8,000 received each year for six years $15,000 received now b-1. If you could earn 12 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) $15,000 $8,000 $106,000 Present Value ___________ ___________ ____________ b-2. Which alternative should you choose? $106,000 received at end of six years $8,000 received each year for six years $15,000 received now 25. You need $25,956 at the end of 10 years, and your only investment outlet is an 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. What single payment could be made at the beginning of the first year to achieve this objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Single payment made? b. What amount could you pay at the end of each year annually for 10 years to achieve this same objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Amount to be paid? 26. Franklin Templeton has just invested $10,160 for his son (age one). This money will be used for his son's education 19 years from now. He calculates that he will need $103,673 by the time the boy goes to school. What rate of return will Mr. Templeton need in order to achieve this goal? Use Appendix B for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Rate of return %? 27. You wish to retire in 13 years, at which time you want to have accumulated enough money to receive an annual annuity of $28,000 for 18 years after retirement. During the period before retirement you can earn 9 percent annually, while after retirement you can earn 11 percent on your money. What annual contributions to the retirement fund will allow you to receive the $28,000 annuity? Use Appendix C and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Annual contribution? 28. Del Monty will receive the following payments at the end of the next three years: $6,000, $9,000, and $11,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $12,000 per year. At a discount rate of 9 percent, what is the present value of all three future benefits? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value of all future benefits 29. Your uncle borrows $59,000 from the bank at 9 percent interest over the seven-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Annual payments? b. How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Interest Principal First payment ___________ ___________ c. How much of his second payment will be applied to each? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Second Payment Interest ________________ Principal _______________ 30. Your parents have accumulated a $130,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $22,000 to help her get started, and they have decided to take year-end vacations costing $9,000 per year for the next four years. Use 6 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then? (Round your final answer to 2 decimal places.) Funds available for graduate school? b. You plan to work on a master's and perhaps a PhD. If graduate school costs $24,580 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.) Number of yearas? 31. Gulliver Travel Agencies thinks interest rates in Europe are low. The firm borrows euros at 10 percent for one year. During this time period the dollar falls 13 percent against the euro. What is the effective interest rate on the loan for one year? (Consider the 13 percent fall in the value of the dollar as well as the interest payment.) (Compute your answer from a U.S. perspective. Input your answer as a whole percent.) Effective interest rate __________%