Yarrow Corp. has an average collection period of 32 days. The company currently factors all of its receivables immediately at a discount rate of 2.5 percent. Assume the risk of customer default is negligible. What is the effective cost of borrowing through factoring? (Assume 365 days in a year.)
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- Your firm has an average collection period of 27 days. The current practice is to factor all receivables immediately at a discount of 2.2 percent. Assume that default is extremely unlikely. What is the effective cost of borrowing? (365 in year)TBTF Bank makes a 3 year interest only loan to AFC Inc of $2,350,000.00. The interest rate on the loan is i(52) = 12.500%, and the payments will be made quarterly. TBTF reinvests the payments at an interest rate of i(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%TBTF Bank makes a 7 year interest only loan to AFC Inc of $4,300,000.00. The interest rate on the loan is i(4) = 8.125%, and the payments will be made annually. TBTF reinvests the payments at an interest rate of i(4) = 5.250%. At maturity, what is TBTF Bank's annual ROI over the lifetime of the loan? (AFC does not default.) a. 8.012% O b. 7.778% O c. 7.856% O d. 7.545% O e. 7.701%
- What is the effective cost of borrowing?ZLX is seeking a bank to place short-term deposits at a good rate. Bank A is offering 3.5% APR compounded daily, while Bank B is offering an effective annual rate of 3.54%. Which bank should ZLX select? A) Bank A B) Bank B C) ZLX is indifferent because the rates are equivalentTBTF 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%
- Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is ? Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a (Higher, lower, the same) interest rate on CDs when they mature, while charging (Higher, lower, the same) interest rate on the six -year auto loans. What will happen to the interest rate spread? (choose 1) It decreases to 0.6% and the North bank's interest income rises. It becomes equal to 2.9% and the North bank's interest income rises. It increases to 2.5% and the North bank's interest income falls. It decreases to 0.6% and the North bank's interest income falls.In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $42,000 and the interest rate is 8.50%, the borrower “pays” 0.0850 × $42,000 = $3,570 immediately, thereby receiving net funds of $38,430 and repaying $42,000 in a year. a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 18.50%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Simmons Corporation can borrow from its bank at 21 percent to take a cash discount. The terms of the cash discount are 2.5/18, net 55. a. Compute the cost of not taking the cash discount. Note: Use a 360-day year. Do not round intermediate calculations. Input your final answer as a percent rounded to 2 decimal places. Cost of not taking a cash discount b. Should the firm borrow the funds? O No O Yes %
- Victory Markets, LLC ("VML") has a bank loan with a total principal of $3,800,000. The stated annual interest rate for the loan is 8.40%, and the loan is to be amortized with monthly payments over 6 years. VML wants the bank to change the provisions of the loan such that payments are made on an annual basis. What would be the economically equivalent annual interest rate (i.e., economically equivalent to 8.40% compounded monthly) for a loan with annual payments? 8.6632% 8.7311% 9.0023% 8.5987%A bank has made a loan charging a base lending rate of 8%. It expects a probability of default of 5%. If the loan is defaulted, it expects to recover 50% of its money through the sale of its collateral. The expected return on this loan is _____% (rounded to two decimal places).Bank K is about to sign a loan agreement with a mining company.The current LIBOR rate is 8%.The risk premium for the company has been estimated as 3% and the origination fee will be 0.1875 percent.The bank will be requesting a 9% compensating balance requirement.If the reserve requirement is 6%,what is the promised gross return on the loan?
