You are the owner of four Taco Bell restaurant locations. You have a business loan with Citizens Bank taken out 60 days ago that is due in 90 days. The amount of the loan is $50,000, and the rate is 9.5% using ordinary interest. You currently have some excess cash: $35,000. Due to situations beyond your control, you, as the owner, must make an immediate business decision now to pursue only one of these two choices: 1) sending all of the $35,000 to Citizens Bank as a partial payment on your loan, or 2) using the $35,000 to purchase serving supplies such as food containers, cups, and plastic dinnerware for your inventory. This is the last day to take advantage of the opportunity to save some money due to a special discount price that is "10% off" the normal cost of $35,000 for these items. Consider these calculations: (a) How much interest (in $) will you save on this loan if you make the partial payment and don't purchase the additional serving supplies? (Round your answer to two decimal places.) $ 812.46 (b) How much money (in $) will you save if you purchase the serving supplies with the discount and don't make a partial payment on the loan? (Round your answer to two decimal places.) $ 2687.55 (c) How much (in $) will you save by purchasing the discounted serving supplies rather than making the partial payment? (Hint: Find the difference between the savings on the supplies found in part (b) and the savings on the loan interest found in part (a). Round your answer to two decimal places.) $ 43875 (d) What other factors should you consider before making this decision?
You are the owner of four Taco Bell restaurant locations. You have a business loan with Citizens Bank taken out 60 days ago that is due in 90 days. The amount of the loan is $50,000, and the rate is 9.5% using ordinary interest. You currently have some excess cash: $35,000. Due to situations beyond your control, you, as the owner, must make an immediate business decision now to pursue only one of these two choices: 1) sending all of the $35,000 to Citizens Bank as a partial payment on your loan, or 2) using the $35,000 to purchase serving supplies such as food containers, cups, and plastic dinnerware for your inventory. This is the last day to take advantage of the opportunity to save some money due to a special discount price that is "10% off" the normal cost of $35,000 for these items. Consider these calculations: (a) How much interest (in $) will you save on this loan if you make the partial payment and don't purchase the additional serving supplies? (Round your answer to two decimal places.) $ 812.46 (b) How much money (in $) will you save if you purchase the serving supplies with the discount and don't make a partial payment on the loan? (Round your answer to two decimal places.) $ 2687.55 (c) How much (in $) will you save by purchasing the discounted serving supplies rather than making the partial payment? (Hint: Find the difference between the savings on the supplies found in part (b) and the savings on the loan interest found in part (a). Round your answer to two decimal places.) $ 43875 (d) What other factors should you consider before making this decision?
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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Transcribed Image Text:You are the owner of four Taco Bell restaurant locations. You have a business
loan with Citizens Bank taken out 60 days ago that is due in 90 days. The
amount of the loan is $50,000, and the rate is 9.5% using ordinary interest.
You currently have some excess cash: $35,000. Due to situations beyond
your control, you, as the owner, must make an immediate business decision
now to pursue only one of these two choices:
1) sending all of the $35,000 to Citizens Bank as a partial payment on your
loan, or
2) using the $35,000 to purchase serving supplies such as food containers,
cups, and plastic dinnerware for your inventory. This is the last day to take
advantage of the opportunity to save some money due to a special discount
price that is "10% off" the normal cost of $35,000 for these items.
Consider these calculations:
(a) How much interest (in $) will you save on this loan if you make the
partial payment and don't purchase the additional serving supplies?
(Round your answer to two decimal places.)
$ 812.46
(b) How much money (in $) will you save if you purchase the serving
supplies with the discount and don't make a partial payment on the loan?
(Round your answer to two decimal places.)
$ 2687.55
(e) How much (in $) will you save by purchasing the discounted serving
supplies rather than making the partial payment? (Hint: Find the
difference between the savings on the supplies found in part (b) and the
savings on the loan interest found in part (a). Round your answer to two
decimal places.)
$ 43875
(d) What other factors should you consider before making this decision?
Expert Solution
Step 1
Here,
Loan Amount is $50,000
Ordinary Interest Rate of the Loan is 9.5%
Duration of Loan is as follows:
=60 Days + 90 Days
=150 days
Excess Cash is $35,000
Normal Price of Serving Supplies is $35,000
Special Discount on Serving Supplies is 10% off on Normal Price
*** Here, we are assuming 360 days in a year
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