General Finance Question Solution Koopman's Chickens, Inc. plans to borrow$300,000 from its bank for one year. The rate ofinterest is 10 percent, but a compensating balanceof 15 percent is required. What is the effective rateof interest?A. 10.11%B. 11.76%C. 13.33%D. 14.12%

Step 1: Identify the key values• Loan amount = $300,000• Nominal interest rate = 10%• Compensating…

Answered: Koopman's Chickens, Inc. plans to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
Bha
Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can utilize effectively (Amount borrowed - Compensating balance) a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest
Ezze Mattress needs to raise $200,000 for 6 months. The bank quotes a discount interest rate of 7.5% but does not require compensating balances. What is the effective annual interest rate on this loan? Multiple choice question. 7.50% 8.11% 7.84% 7.81%
Suppose you borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value What effective annual interest rate are yo being charged
Van Buren Resources Inc. is considering borrowing $120,000 for 168 days from its bank. Van Buren will pay $7,000 of interest at maturity, and it will repay the $120,000 of principal at maturity. Assume that there are 365 days per year. Calculate the loan’s annual financing cost. Round your answer to two decimal places. % Calculate the loan’s annual percentage rate. Round your answer to two decimal places. %
A firm borrows $200,000 at 10 percent from a bank with a compensating balance of 20 percent. What is the effective rate of interest if the loan is discounted and the principal is repaid at the end of one year? 15.28% 16.28% 17.28% 14.28% 19.55%
Van Buren Resources Inc. is considering borrowing $90,000 for 175 days from its bank. Van Buren will pay $3,000 of interest at maturity, and it will repay the $90,000 of principal at maturity. Assume that there are 365 days per year. Calculate the loan’s annual financing cost. Round your answer to two decimal places. % Calculate the loan’s annual percentage rate. Round your answer to two decimal places. % What is the reason for the difference in your answers to Parts a and b? The does not consider compounding effects.
Your company plans to borrow $5 million for 12 months, and your banker gives you a stated rate of 8 percent interest. You would like to know the annual rate of interest for the following types of loans. (Each of the following parts stands alone.) a. Simple 8 percent interest with a 10 percent compensating balance. b. Discounted interest. c. An installment loan (12 payments). d. Discounted interest with a 1 percent administration fee.
Assume you borrow $10,000 today and promise to repay the loan in two payments, one in year 2 and the other in year 4, with the one in year 4 being only half as large as the one in year 2. At an interest rate of 10% per year, the size of the payment in year 4 is closest to: (a) $4280 (b) $3975 (c) $3850 (d) $3690
Van Buren Resources Inc. is considering borrowing $100,000 for 202 days from its bank. Van Buren will pay $3,000 of interest at maturity, and it will repay the $100,000 of principal at maturity. Assume that there are 365 days per year. Calculate the loan’s annual percentage rate. Round your answer to two decimal places. %

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Principles of Accounting Volume 1

Accounting

ISBN:

9781947172685

Author:

OpenStax

Publisher:

OpenStax College

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS

Koopman's Chickens, Inc. plans to borrow $300,000 from its bank for one year. The rate of interest is 10 percent, but a compensating balance of 15 percent is required. What is the effective rate of interest? A. 10.11% B. 11.76% C. 13.33% D. 14.12%