Biochemical Corporation requires $650,000 in financing over the next three years. The firm can borrow thefunds for three years at 12.60 percent interest per year. The CEO decides to do a forecast and predicts that ifshe utilizes short-term financing instead, she will pay 9.25 percent interest in the first year, 13.50 percentinterest in the second year, and 10.50 percent interest in the third year. Assume interest is paid in full at the endof each year.Determine the total interest cost under each plan.Long-term fixed-rateShort-term variable-rateWhich plan is less costly? multiple choiceShort-term variable-rate planLong-term fixed-rate planinterest cost

To determine the total interest cost under each plan, the formula isInterest =Principal Amount *…

Answered: Biochemical Corporation requires…

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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The financial managers at Henderson Corporation are arranging the financing for working capital requirements for the upcoming year. Henderson's local bank offers a discount interest loan at a quoted (simple) interest rate of 12.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Henderson applies for a $300,000 loan with a nine-month term. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. Interest payment Amount of cash received Annual percentage rate (APR) Effective annual rate (EAR) What is the nine-month rate if the bank charges a $100 processing fee? O 9.93% O 9.03% O 8.94% Value O 13.19%
The Omega Venture Group needs to borrow to finance a project. Repayment of the loan involves payments of $880 at the end of every month for five years. No payments are to be made during the development period of six years. Interest is 9% compounded quarterly. (a) How much should the Group borrow? (b) What amount will be repaid? (c) How much of that amount will be interest? a) The Group should borrow $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.) b) The amount that will be repaid is $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.) c) The amount of interest will be $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.).
Complete the problems below. 1. A company will need $40,000 in four years for a new addition. To meet the goal, the company will deposit money into an account paying 6% annual interest, compounded monthly. How much should the company deposit each month in order to be able to pay for the addition? Looking at a couple of scenarios to compare to the initial investment (above): a. Exactly 20 months after the company begins their investment (above), they receive a payment from a settled lawsuit of $2000 that they immediately deposit into the account. If they continue, uninterrupted, with their monthly deposits, will the company be able to afford to add a skylight to the addition if the change order (the amount added to the original cost of $40,000) is $3000? If yes, how much, if any would be left over? If no, how much more money will they need? b. Suppose that instead of depositing the money monthly for five years, they decide to finance the addition (the original $40,000) for four years at…
Callis Construction LLC is planning to expand its site planning division 4 years from now. In order to expand, the CFO of the company has determined that $400,000 will be required. Eighth National Bank has agreed to pay 8% simple interest for the first 2 years the money is on deposit with the terms changing to a 6% nominal rate compounded monthly for the last 2 years. How much should Callis deposit today in order to have the needed $400,000?
A business sets up a sinking fund so they will have a $68,000.00 to pay for a replacement piece of equipment in 12 years when the current equipment will be sold for scrap. If they make deposits at the end of each quarter for 12 years in the investment that pays 6.3% compounded quarterly, what size should each payment be? Answer: The quarterly payments are $. (Round to the nearest cent/penny)
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $545 per hour and her opportunity cost of capital is 11% per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 11%.) What about the NPV rule? The annual IRR is%. (Round to two decimal places.)
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $ 50 comma 000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $ 540 per hour and her opportunity cost of capital is 15 % per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 15 %.) What about the NPV rule?
Ranger Enterprises is considering pledging its receivables to finance a needed increase in working capital. Its commercial bank will lend 70 percent of the pledged receivables at 2.5 percentage points above the prime rate, which is currently 10 percent. In addition, the bank charges a service fee equal to 2 percent of the pledged receivables. Both interest and the service fee are payable at the end of the borrowing period. Ranger’s average collection period is 55 days, and it has receivables totaling $7 million that the bank has indicated are acceptable as collateral. Calculate the annual financing cost for the pledged receivables. Assume that there are 365 days per year. Round your answer to two decimal places. %
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $550 per hour and her opportunity cost of capital is 16% per year. What does the IRR rule advise regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 16%.) What about the NPV rule? The annual IRR is ☐ %. (Round to two decimal places.)
Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year, the firm would have access to 8 hours of her time every month. Smith's rate is $550 per hour, and her opportunity cost of capital is 15% (equivalent annual rate, EAR). What is the IRR (annual)? What does the IRR rule advise regarding this opportunity? What is the NPV? What does the NPV rule say about this opportunity? The IRR (annual) is %. (Round to two decimal places.)
The profit - maximizing manager of Big Farms wants to purchase a large piece of farm equipment. The manager has two financing options from two different banks. Big Bank will allow the manager to make five equal payments of $22,000 at the end of each of the next five years. Best Bank will allow the manager to make a payment of $10,000 at the end of the next four years and then make a balloon payment of $72,000 at the end of the fifth year. If the interest rate is 4 percent, which of the following statements is true? OA. The present value of the two payment plans is exactly the same, so the manager of Big Farms is indifferent between the two payment plans. OB. The manager of Big Farms should select Big Bank's offer as the present value of the payment plan is $97,939.60, which is lower than the payment plan offered by Best Bank. OC. The manager of Big Farms should select Big Bank's offer because the total repayment less than the total repayment at Best Bank. D. The manager of Big Farms…
The Odessa Supply Company is considering obtaining a loan from a sales finance company secured by inventories under a field warehousing arrangement. Odessa would be permitted to borrow up to $320,000 under such an arrangement at an annual interest rate of 10 percent. The additional cost of maintaining a field warehouse is $20,000 per year. Assume that there are 365 days per year. Determine the annual financing cost of a loan under this arrangement if Odessa borrows the following amounts: $320,000. Round your answer to two decimal places. % $240,000. Round your answer to two decimal places. %

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