Neveready Flashlights Inc. needs $510,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at interest cost of $7,600. a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 70 days instead of te days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount c. Should the firm borrow the money to take the discount?
Neveready Flashlights Inc. needs $510,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at interest cost of $7,600. a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 70 days instead of te days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount c. Should the firm borrow the money to take the discount?
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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Neveready Flashlights Inc. needs $510,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at an
interest cost of $7,600.
a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final
answer to 2 decimal places.)
Annual rate
b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 70 days instead of 10
days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Cost of not taking a cash discount
c. Should the firm borrow the money to take the discount?
O Yes
No
d. If the banker requires a 12 percent compensating balance, how much must the firm borrow to end up with the $510,000? (Use 365
days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Amount to be borrowed
$
e-1. What would be the effective interest rate in part d if the interest charge for 60 days were $11,000? (Use 365 days in a year. Do not
round intermediate calculations. Round the final answer to 2 decimal places.)
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