# Chapter 26

Satisfactory Essays
421 Words
Grammar
Plagiarism
Writing
Score
Chapter 26
Written Assignment 10
Chapter 26, Problems 2, 5, 6, 9, & 11.

2) Tinker, Inc., finances its seasonal working capital need with short-term bank loans, Management plans to borrow \$65,000 for a year. The bank has offered the company a 3.5% discounted loan with a 1.5% origination fee. What are the interest payment and the origination fee required by the loan?
Interest paid: \$65,000 x 0.1 x 120/360 = \$2,167
Origination fee: \$65,000 x 0.015 = \$975
Funds the firm gets to use: \$65,000 - \$2,167 - \$975 = \$61,858
What is the rate of interest charges by the bank? The simple rate of interest: i = \$3,142 x 360 = 15.24% \$61,858 120

5) An individual wishes to borrow \$10,000 for a year and is offered the following alternatives:
a) A 10% loan discounted in advance?
b) An 11% straight loan (i.e., interest paid at maturity). Which loan is more expensive?
Cost of the discounted loan paper: \$1,000 x 360 = 11.1% \$9,000 360
Cost of the non-discounted loan with the higher stated rate: \$1,100 x 360 = 11% \$10,000 360
The loan with the higher stated interest rate has the lower effective cost of borrowing.

6) Which of the following terms of trade credit is the more expensive? The interest rates are about the same.
a) A 3% cash discount if paid on the 15th day with the bill due on the 45th day (3/15, net 45)?
The simple rate of interest rate: i = .03 x 360 = 37.1% 1 ‑ .03 45 ‑ 15

The compound interest rate: i = (1.0309)30/365 ‑ 1 = .449 = 44.9%
b) A 2% cash discount if paid on the 10th day with the bill due on the 30th day (2/10, net 30)?
The simple interest rate: i = .02 x 360 = 36.7% 1 ‑ .02 30 ‑ 10

The compound interest rate: i = (1.0204)18.25 ‑ 1 = .446 = 44.6%

9) If \$1 million face amount of commercial paper (270-day paper) is sold for \$982,500, what is the simple rate of

## You May Also Find These Documents Helpful

• Satisfactory Essays

A) The textbook states that 30 percent of customers pay on the 10th, 40 percent pay on the 13th and 30 percent pay on the 40th day after purchase.…

• 93 Words
• 1 Page
Satisfactory Essays
• Satisfactory Essays

a. How large must the single deposit today into an account paying 8% annual interest be to provide for full coverage of the anticipated budget shortfalls?…

• 458 Words
• 3 Pages
Satisfactory Essays
• Powerful Essays

Subsequent Cash ......................................... XXX cash receipt: Accounts Receivable ...... XXX On August 6, within the discount period, the payment would be \$3,880 (\$4,000 – 3% of \$4,000, or \$4,000 – \$120). On August 9, which is after the discount period, payment would be the full amount of \$4,000. The three-day difference is crucial: August 6 is within the discount period, but August 9 is too late to earn the 3 percent discount. The latest acceptable payment date under the sale terms would be…

• 10371 Words
• 42 Pages
Powerful Essays
• Satisfactory Essays

1. On March 12, Bill Jones accepted a \$12,000 note in granting a time extension of a bill for goods purchased by Ron Prentice. Terms of the note were 13% for 90 days. On April 24, Bill could no longer wait for the money and discounted the note at Able Bank at a discount rate of 14%. The proceeds to Bill is:…

• 1386 Words
• 17 Pages
Satisfactory Essays
• Satisfactory Essays

6. (TCO B) Suppose you borrowed \$14,000 at a rate of 10.0% and must repay it in five equal installments at the end of each of the next five years. How much interest would you have to pay in the first year?…

• 618 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

2. Consider a \$100,000 debt that is to be amortized in 360 equal monthly payments…

• 448 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

In 150 to 200 words, explain your reasoning for the way you are planning on using the Discount Rate. Be sure to address the following:…

• 445 Words
• 2 Pages
Satisfactory Essays
• Good Essays

B. The swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR…

• 4430 Words
• 18 Pages
Good Essays
• Powerful Essays

• The term of the loan. Under normal circumstances a long-term loan will attract a higher rate of…

• 9400 Words
• 37 Pages
Powerful Essays
• Good Essays

d. Purchased \$15,000 of equipment, paying \$5000 cash and signing a note for the rest due in one year.…

• 841 Words
• 4 Pages
Good Essays
• Satisfactory Essays

c. What are some of the risks and cost considerations associated with each of these alternative financing strategies?…

• 286 Words
• 2 Pages
Satisfactory Essays
• Good Essays

In accordance to the arbitrage rule of thumb, given the difference in the interest rate is greater than the expected change in spot rate, it is advisable that Akira Numata should borrow yen and invest in the higher yielding currency which is, in this case the U.S dollar. By doing so, she would be able to gain an uncovered investment arbitrage.…

• 1378 Words
• 6 Pages
Good Essays
• Good Essays

b. Alpha needs to issue fixed-rate debt at 10.5% and Beta needs to issue floating rate-debt at LIBOR + 1%. Alpha needs to pay LIBOR to Beta. Beta needs to pay 10.75% to Alpha. If this is done, Alpha’s floating-rate all-in-cost is: 10.5% + LIBOR - 10.75% = LIBOR - .25%, a .25% savings over issuing floating-rate debt on its own. Beta’s fixed-rate all-in-cost is: LIBOR+ 1% + 10.75% - LIBOR = 11.75%, a .25% savings over issuing fixed-rate debt.…

• 612 Words
• 3 Pages
Good Essays
• Good Essays

b. You’re planning to borrow €30,000 to buy a new car. You were offered a 6-year loan which needs to be repaid monthly at 11% annual interest (with the first payment now). How much money would you have to repay each month?…

• 398 Words
• 4 Pages
Good Essays
• Good Essays

If the interest rate on day 60 is 2.4%, how much will the lender have to pay if the…

• 724 Words
• 5 Pages
Good Essays