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Tic & Tac Manufacturing is expanding its facilities and requires a bank loan of $2,000,000 for one year. The banker has offered a stated rate
Tic & Tac Manufacturing is expanding its facilities and requires a bank loan of $2,000,000 for one year. The banker has offered a stated rate of 5% interest and has offered the company four different options, and management must decide what would be most suitable. TASK: Compare each alternative by calculating the annual rate of interest for each. Option #1: A simple 5% interest with a 8% compensating balance. Option #2: Discounted interest. Option #3: A 12-month installment loan Option #4: Discounted interest with a 1% administration fee. QUESTION: What option should management pick
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