Need help The Hand-to-Mouth Company needs a $10,000 loan for the next 30 days. It is tryingto decide which of three alternatives to use:Alternative A: Forgo the discount on its trade credit agreement that offers terms of2/10, net 30.Alternative B: Borrow the money from Bank A, which has offered to lend the firm$10,000 for 30 days at an APR of 12%. The bank will require a (no-interest)compensating balance of 5% of the face value of the loan and will charge a $100loan origination fee, which means Hand-to-Mouth must borrow even more than the$10,000.Alternative C: Borrow the money from Bank B, which has offered to lend the firm$10,000 for 30 days at an APR of 15%. The loan has a 1% loan origination fee.Which alternative is the cheapest source of financing for Hand-to-Mouth?

To determine the cheapest source of financing for Hand-to-Mouth Company, we need to calculate the…

Answered: The Hand-to-Mouth Company needs a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 10P

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Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $23345, and they can borrow the money from Bank A, which has offered to lend the firm $23345 for 2 month(s) at an APR (compounded) of 15%. The bank will require a (no-interest) compensating balance of 7% of the face value of the loan and will charge a $216 loan origination fee, which means Hand-to-Mouth must borrow even more than the $23345. Compute the EAR of the loan. Give typing answer with explanation and conclusion
Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $12,245, and they can borrow the money from Bank B, which has offered to lend the firm $12,245 for 1 months at an APR of 13% (compounded). The loan has a 1.54% loan origination fee. What would be the cost for Company A if they decide to borrow from Bank B?
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