Principle of finance

Problem 8-24 Bank loan to take cash discount [LO8-1, 8-2] Neveready Flashlights Inc needs $343,000 to take a cash discount of 2/17. net 78. A banker will loan the money for 61 days at an interest cost of $10.900. 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 18.75% b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 78 days instead of 17 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 d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $343,000? Amount to be borrowed % e-1. What would be the effective interest rate in part d if the interest charge for 61 days were $8,300? (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.) O Yes No Problem 8-18 Effective rate under different terms [LO8-2] If you borrow $4,600 at $850 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.) Effective Rate of Interest 18.471% a, Annual payment b Semiannual payments c. Quarterly payments d. Monthly payments % % % Problem 8-28 Hedging to offset risk (LO8-5] 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 $164.000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 8.30 percent. If they increase to 9.50 percent, assume the value of the contracts will go down by 10 percent Also, if interest rates do increase by 12 percent, assume the firm will have additional interest expense on its business loans and other commitments of $100,000. 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 9.50 percent by December when the contract is closed out? on futures contracts b-1. After considering the hedging, what is the net cost to the firm of the increased interest expense of $100,000? Nel cost b-1. After considering the hedging, what is the net cost to the firm of the increased interest expense of $100,000? Nel cost b-2. What percent of this $100,000 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 O LOSS O Profit