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: $25,000. 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 $25,000 to Citizens Bank as a partial payment on your loan, or 2) using the $25,000 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 $25,000 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.) (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.) (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.) (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: $25,000. 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 $25,000 to Citizens Bank as a partial payment on your loan, or 2) using the $25,000 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 $25,000 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.) (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.) (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.) (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
Related questions
Question
v
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: $25,000. 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 $25,000 to Citizens Bank as a partial payment on your loan, or
2) using the $25,000 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 $25,000 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.)
(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.)
(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.)
(d) What other factors should you consider before making this decision?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 6 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education