Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $200,000 that it will accept as collateral. The bank's terms include a lending rate set at prime + 3.5% and a 1.5% commission charge. The prime rate currently is 9%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 90% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Software's effective annual rate of interest if it borrows $120,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-day year and a prime rate that remains at 9% during the life of the loan.) a. The maximum amount that the bank will lend to Scientific Software is $ (Round to the nearest dollar.)
Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $200,000 that it will accept as collateral. The bank's terms include a lending rate set at prime + 3.5% and a 1.5% commission charge. The prime rate currently is 9%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 90% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Software's effective annual rate of interest if it borrows $120,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-day year and a prime rate that remains at 9% during the life of the loan.) a. The maximum amount that the bank will lend to Scientific Software is $ (Round to the nearest dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Accounts Receivable as Collateral, Cost of Borrowing**
Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $200,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime + 3.5% and a 1.5% commission charge. The prime rate currently is 9%.
a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 90% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?
b. What is Scientific Software’s effective annual rate of interest if it borrows $120,000 for 12 months? For 6 months? For 3 months? *(Note: Assume a 365-day year and a prime rate that remains at 9% during the life of the loan.)*
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a. The maximum amount that the bank will lend to Scientific Software is $[ ]. *(Round to the nearest dollar.)*](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb3b07c0a-1a3f-49c8-9960-f391d5264025%2Fff8c42c0-5104-473c-aeee-be5c4e3aefed%2Fcbjt9ms_processed.png&w=3840&q=75)
Transcribed Image Text:**Accounts Receivable as Collateral, Cost of Borrowing**
Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $200,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime + 3.5% and a 1.5% commission charge. The prime rate currently is 9%.
a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 90% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?
b. What is Scientific Software’s effective annual rate of interest if it borrows $120,000 for 12 months? For 6 months? For 3 months? *(Note: Assume a 365-day year and a prime rate that remains at 9% during the life of the loan.)*
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a. The maximum amount that the bank will lend to Scientific Software is $[ ]. *(Round to the nearest dollar.)*
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