(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-termbank loan. The loan will carry a rate of 16 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand depositwith the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 6 months, what is the annualized cost ofthe bank loan?

APR stands for Annual Percentage Rate. It is a measure used to express the true cost of borrowing on…

Answered: (Related to Checkpoint 18.2)…

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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Resty Corporation needs P400,000 additional financing. The company is considering the choice of financing with a bank or a factor. The bank loan carries a 20 percent interest rate on a discount basis with a required compensating balance of 16 percent. The factor charges a 3 percent commission on invoices purchased monthly. The interest rate associated with these invoices is 11 percent with interest deductible in advance. If a factor is used, there will be a monthly savings of P1,500 per month in credit department costs. Further, the expense of an uncollectible account of 2 percent on the factored receivables will not exist. (A) What amount of principal must the company borrow from the bank to receive P400,000 in proceeds? (B) What amount of accounts receivable must be factored to net the firm P400,000? choose the bullet with the correct answer (A) P325,000.00 and (B) P265,116.00 (A) P525,000.00 and (B) P465,116.00 (A) P525,000.00 and (B) P265,116.00 (A) P625,000.00 and (B)…
The treasurer of Brandon Blue Sox is seeking a $29,000 loan for 180 days from the Brandon Credit Union. The stated interest rate is 12 percent and there is a 20 percent compensating balance requirement. The treasurer always keeps a minimum of $2.400 in the firm's chequing account. These funds could count toward meeting any compensating balance requirements. What is the annual rate of interest on this loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of interest
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 $350,000 under such an arrangement at an annual interest rate of 10 percent. The additional cost of maintaining a field warehouse is $17,000 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: $350,000. Round your answer to two decimal places. % $320,000. Round your answer to two decimal places. %
A loan of $30,000 is to be financed over a period of 24 months. The agency quotes a nominal interest rate of 9% for the first 12 months and a nominal interest rate of 12% for any remaining unpaid balance after 12 months with both rates compounded monthly. At these rates, what equal end-of-the-month payment for 24 months would be required in order to repay the loan? (Choose the closest answer)
A loan of $15,000 is to be financed over a period of 24 months. The agency quotes a nominal interest rate of 6% for the first 12 months and a nominal interest rate of 9% for any remaining unpaid balance after 12 months with both rates compounded monthly. At these rates, what equal end-of-the-month payment for 24 months would be required in order to repay the loan? (Choose the closest answer)
Zenith Bank charges an interest rate of 16.9% per annum on a loan to Samson Ltd. The bank requires borrowers to keep compensating balance (b) on loans of 3% and there is 7% reserve requirement (RR). The bank also charges administration fees of 2.9% of the loan amount per annum. What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to four decimal places. Please also keep your answer in decimals not percentage terms. e.g. if the answer is 8.157%, enter 0.0816) Answer:
Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10 percent. The bank requires a 15% compensating balance and the firm currently maintains $20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost to Melody of this loan.
BNP Paribas has 800 depositors. Each depositor deposits $1,000 into the bank at t=0. BNP Paribas offers its depositors an 8% interest rate. BNP then uses the deposits to make 2 year simple loans at an interest rate of 8%. Depositors of BNP Paribas can either withdraw their deposits at t=1 or t=2. At t=1, BNP can sell its loans at the initial loan values, if needed. Assume that each depositor believes that there are a total of 300 depositors who will withdraw at t=1. How much of loan payments (in $) does each depositor expects the bank to receive at t=2? Round your answer to at least 2 decimal places.
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. %
(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.)
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. %
TBTF Bank makes a 3 year interest only loan to AFC Inc of $2,350,000.00. The interest rate on the loan is ¡ (52) = 12.500%, and the payments will be made quarterly. TBTF reinvests the payments at an interest rate of ¡(26) = 14.250%. At maturity, what is TBTF Bank's annual ROI over the lifetime of the loan? (AFC does not default.) a. 11.289% b. 12.241% C. 13.601% d. 14.009% e. 12.377%

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