Alpha corporation needs a $20,000 loan for the next 30 days. It's trying to decide which of the three alternatives to use: A) Forgo the discount on its trade credit agreement that offers terms of 2/10, Net 30. B) Borrow money from bank A, which offered to lend the firm $20,000 for 30 days with APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means Alpha corporation must borrow even more than the $10,000 C) Borrow money from bank B, which has offered to lend the firm $10,000 for 30 days at an APR of 15%. The loan has a 1% origination fee. Which of the alternative is the cheapest source of financing for the Alpha corporation.
Alpha corporation needs a $20,000 loan for the next 30 days. It's trying to decide which of the three alternatives to use: A) Forgo the discount on its trade credit agreement that offers terms of 2/10, Net 30. B) Borrow money from bank A, which offered to lend the firm $20,000 for 30 days with APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means Alpha corporation must borrow even more than the $10,000 C) Borrow money from bank B, which has offered to lend the firm $10,000 for 30 days at an APR of 15%. The loan has a 1% origination fee. Which of the alternative is the cheapest source of financing for the Alpha corporation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Solve this problem
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education