Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 22, Problem 7P
Effective Cost of Short-Term Credit
Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?
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Effective Cost of Short-Term Credit
Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 15% nominal rate; (b) borrow on a 3-month, but renewable, loan basis at an 11.1% nominal rate; (c) borrow on an installment loan basis at a 6% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places.
Credit C: %
Credit D: %
Cost of Trade Credit
If a firm buys under terms of 3/15, net 55, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its…
Computing the cost of a discount interest loan
The financial managers at Montross Corporation are arranging the financing for working capital requirements for the upcoming year. Montross’s local bank offers a discount interest loan at a quoted (simple) interest rate of 4.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Montross applies for a $200,000 loan with a nine-month term.
Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. (Fill In)
Value
Interest payment
________________
Amount of cash received
________________
Annual percentage rate (APR)
________________
Effective annual rate (EAR)
________________
What is the nine-month rate if the bank charges a $100 processing fee? Pick one choice.
3.15%
4.12%
3.05%
2.84%
7. Computing the cost of a discount interest loan
The financial managers at Wallace Corporation are arranging the financing for working capital requirements for the upcoming year. Wallace's local bank
offers a discount interest loan at a quoted (simple) interest rate of 8.00%. With a discount interest loan, interest is payable up front, and the actual
amount received is less than the face amount of the loan. Suppose Wallace applies for a $300,000 loan with a nine-month term.
Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.
Interest payment
Amount of cash received
Annual percentage rate (APR)
Effective annual rate (EAR)
What is the nine-month rate if the bank charges a $100 processing fee?
O 5.78%
O 6.03%
O 8.51%
Value
O 6.42%
Chapter 22 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 22 - Prob. 1QCh. 22 - Prob. 2QCh. 22 - Is it true that if a firm calculates its days...Ch. 22 - Firm A had no credit losses last year, but 1% of...Ch. 22 - Indicate by a (+), (), or (0) whether each of the...Ch. 22 - Cost of Bank Loan On March 1, Minnerly Motors...Ch. 22 - Cost of Bank Loan Mary Jones recently obtained an...Ch. 22 - Del Hawley, owner of Hawleys Hardware, is...Ch. 22 - Gifts Galore Inc. borrowed 1.5 million from...Ch. 22 - Relaxing Collection Efforts The Boyd Corporation...
Ch. 22 - Tightening Credit Terms Kim Mitchell, the new...Ch. 22 - Effective Cost of Short-Term Credit Yonge...Ch. 22 - Monitoring of Receivables
The Russ Fogler Company,...Ch. 22 - Prob. 10PCh. 22 - Prob. 1MCCh. 22 - Prob. 2MCCh. 22 - Prob. 3MCCh. 22 - Prob. 4MCCh. 22 - Prob. 5MCCh. 22 - Prob. 6MCCh. 22 - Prob. 7MCCh. 22 - Assume that it is now July of Year 1 and that the...Ch. 22 - Now assume that it is several years later. The...Ch. 22 - Prob. 10MCCh. 22 - Prob. 11MCCh. 22 - Prob. 12MCCh. 22 - Prob. 13MCCh. 22 - Prob. 14MCCh. 22 - Suppose the firm makes the change but its...
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