(Cost of short-term bank loan) On July 1, 2018, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of theagreement call for a $120,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 19 percent compensating balance in its demand depositaccount throughout the year. The prime rate is currently 11 percent. Note: Interest is not paid in advance (discounted).a. If Southwest normally maintains a $22,800 to $34,800 balance in its checking account with FNB of Dallas, what is the effective cost of credit under the line-of-credit agreementwhen the maximum loan amount is used for a full year?b. Compute the effective cost of credit if the firm borrows the compensating balance and the maximum possible amount under the loan agreement. Again, assume the full amount ofthe loan is outstanding for a whole year.Ca. If Southwest normally maintains a $22,800 to $34,800 balance in its checking account with FNB of Dallas, what is the effective cost of credit, or APR, under the line-of-creditagreement when the maximum loan amount i used for a full year?% (Round to two decimal places.)

The effective cost of credit under the line-of-credit agreement, when the maximum loan amount is…

Answered: (Cost of short-term bank loan) On July…

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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On December 31, 2016, Rocky Bank has a loan receivable of P4,000,000 from a borrower that it's carrying is at face value and is due on December 31, 2022. Interest on the loan is payable at 9% each December 31. The borrower paid the interest due on December 31, 2016 but informed the bank that it would probably miss the next two years' interest payments. After that, the borrower is expected to resume the annual interest payment but it would make the principal payment one year late, with interest paid for that additional year at the time of principal payment. Round off present value factors up to three decimal points. What is the impairment loss for 2016?
A company has borrowed $210,000 under a line-of credit agreement. It must pay a stated interest rate of 12% paid at maturity and maintain, in its checking account, a compensating balance equal to 14% of the amount borrowed. a. Calculate the compensating balance amount. b. Calculate the effective interest rate? c. Calculate the effective interest rate if the interest paid in advance?
Lowlife Company defaulted on a $200,000 loan that was due on December 31, 2024. The bank has agreed to allow Lowlife to repay the $200,000 by making a series of equal annual payments beginning on December 31, 2025. Required: 1. Calculate the required annual payment of the bank's Interest rate is 10% and four payments are to be made. 2. Calculate the required annual payment of the bank's Interest rate is 8% and five payments are to be made. 3. If the bank's Interest rate is 10%, how many annual payments of $28,156 would be required to repay the debt? 4. If three payments of $72,070 are to be made, what interest rate is the bank charging Lowlife? Note: For all requirements, Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Calculate the required annual payment if the bank's interest rate is 10% and four payments…
A bank offers your firm a revolving credit arrangement for up to $86 million at an interest rate of 2.15 percent per quarter. The bank also requires you to maintain a compensating balance of 2 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.50 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % b. What is your effective annual interest rate on the lending arrangement if you borrow $50 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2…
On December 31, 2021, MATARLO Company received two P1,000,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from MAGLINTE Company, made under customary trade terms, is due in nine months and the note from MADERSE Company is due in five years. The market interest rate for similar notes on December 31, 2021 was 8%. The compound interest factors to convert future value into present value at 8% follow: Present value of 1 due in nine months, 0.944 and the present value of 1 due in five years is 0.680. 33. What is the total carrying amount of the notes receivable to be presented at the 2021 statement of financial position?
The following selected transactions relate to liabilities of Colorado Adventures. Colorado's fiscal year ends on December 31. January 13 Negotiate a revolving credit agreement with First Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $10 million at the bank's prime rate. February 1 Arrange a three-month bank loan of $3.8 million with First Bank under the line of credit agreement. Interest at the prime rate of 7% is payable at maturity. May 1 Pay the 7% note at maturity. Required: Record the appropriate entries, if any, on January 13, February 1, and May 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 million should be entered as 5,000,000).)
On the June 12 interest payment date, the outstanding balance on Delta Nurseries’ revolving loan was $65,000. The floating interest rate on the loan stood at 6.25% on June 12, but rose to 6.5% on July 3, and to 7% on July 29. If Delta made principal payments of $10,000 on June 30 and July 31, what were the interest charges to its bank account on July 12 and August 12? Present a repayment schedule supporting the calculations. (Round your final answers to 2 decimal places.) Date Number of days Interest rate (%) Interest ($) Accrued interest ($) Payment (Advance) ($) Principal portion ($) Balance ($) 12-Jun -- -- -- -- -- 65,000 30-Jun 18 6.25 10,000.00 10,000 55,000 3-Jul 3 6.25 55,000 12-Jul 9 6.50 55,000 29-Jul 17 6.50 55,000 31-Jul 2 7.00 10,000.00 10,000 45,000 12-Aug 12 7.00 45,000
On October 1, 2020, Shamrock, Inc. assigns $1,160,700 of its accounts receivable to Bridgeport National Bank as collateral for a $747,900 note. The bank assesses a finance charge of 3% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Shamrock and Bridgeport. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Shamrock, Inc. Oct. 1 Bridgeport National Bank Oct. 1
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 6 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is %. (Round to two decimal places.)
$120,000 of its accounts receivable to 2nd National Bank as collateral for a $70,000 loan due August 1 of the same year. The assignment agreement calls for Bay Co. to continue to collect the receivables. The bank assesses a finance charge of 3% of the accounts receivable. The interest rate on the loan is 8% which is a realistic interest rate for this type of loan. Prepare the journal entry that Bay Co. would make on February 1 Prepare the journal entry for Bay's collection of $50,000 of the receivables between February 1 and July 31. Prepare the journal entry to record Bay Co.'s payment to the bank.
(assigning accounts receivable) - On April 1, 20017, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2017. The assignment agreement calls for Rasheed to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan of 10% Instructions-- a) Prepare the April 1, 2017 journal entry for Rasheed Company b) Prepare the journal entry for Rasheed's collection of $350,000 of the accounts receivable during the period of April 1, 2017 through July 1, 2017 c) On July 1 ,2017 Rasheed paid Third Naltional all that was due from the loan it secured on April 1, 2017. Prepare the journal entry to record this payment.

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