EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 26, Problem 13P
Summary Introduction
To determine: Whether Person S has to take the loan and get the benefits from discounts offered.
Introduction:
Trade credit is an offering given by the suppliers to the firm. When supplier agrees to deliver the products and gives a specified time period for the payment, the supplier will tend to give some sort of percentage as a credit discount to the firm, if the payment is made within the specific period.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Simple Simon’s Bakery purchases supplies on terms of 1/10, Net 25. If Simple Simon’s chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon’s owner an interest rate of 12% on borrowed funds and no origination fees. Should Simple Simon’s enter the loan agreement with the bank in order to begin taking the discount?
Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table:
Customer
Accounts
Receivable
Average age
of account
Average payment
period of customer
A
$11,000
42 days
50 days
B
$25,000
70 days
65 days
C
$10,000
48 days
45 days
D
$28,000
55 days
50 days
E
$14,000
50 days
60 days
F
$19,000
21 days
35 days
G
$30,000
10 days
30 days
H
$16,000
25 days
40 days…
Please show all equations and work as needed. If possible, please type the work so that it may be copied and pasted. Thank you.
Chapter 26 Solutions
EBK CORPORATE FINANCE
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
Knowledge Booster
Similar questions
- Tuckahoe Hospital wishes to establish a line of credit with a bank. FIRST Bank terms call for a $500,000 maximum loan with an interest rate of 4% and a $2,000 fee. SECOND Bank terms call for a $500,000 maximum loan with an interest rate of 5% but no fee. The compensating balance requirement is 5% of the total line of credit for either bank. What is the effective interest rate for Tuckahoe Hospital from SECOND Bank if 50% of the total amount were used during the year?arrow_forwardTuckahoe Hospital wishes to establish a line of credit with a bank. FIRST Bank terms call for a $500,000 maximum loan with an interest rate of 4% and a $2,000 fee. SECOND Bank terms call for a $500,000 maximum loan with an interest rate of 5% but no fee. The compensating balance requirement is 5% of the total line of credit for either bank. What is the effective interest rate for Tuckahoe Hospital from FIRST Bank if 50% of the total amount were used during the year? What is the effective interest rate for Tuckahoe Hospital from FIRST Bank is 25% of the total amount were used during the year? What is the effective interest rate for Tuckahoe Hospital from SECOND Bank if 50% of the total amount were used during the year? What is the effective interest rate for Tuckahoe Hospital from SECOND Bank if 25% of the total amount were used during the year? Which bank would be the better choice for Tuckahoe Hospital? You will enter FIRST or SECOND as your answer.arrow_forwardIf a company accepts credit cards, they must record the expense on their books. Please prepare the journal entries for the following scenario: Company A sells $480,000 on credit card sales. The credit card charges a 4.5% fee for the use of the card. The card company also deposits the cash into the company’s bank account the same night as the credit cards are accepted.arrow_forward
- Mrs. Shimizu borrowed money from a bank. She received from the bank P1,342 and promised torepay P1,500 at the end of 10 months. Determine (a) simple interest rate (b) discount offered asBanker’s discount. Show your complete solution.arrow_forwardRetailers that accept credit cards pay a “swipe fee” to credit-card issuers such as Visa and Mastercard ranging from 1 to 3 percent of the purchase. The credit-card companies prohibited retailers from passing that fee on to consumers, but a recent lawsuit settlement proposal lifted that restriction. Under the settlement, retailers can charge 2.5 to 3 percent on each transaction. Discuss this issue and develop a report on the pros and cons of retailers adding a surcharge to credit purchases. (AACSB: Written and Oral Communication; Reflective Thinking)arrow_forwardRetailers that accept credit cards pay a “swipe fee” to credit-card issuers such as Visa and Mastercard ranging from 1 to 3 percent of the purchase. The credit-card companies prohibited retailers from passing that fee on to consumers, but a recent lawsuit settlement proposal lifted that restriction. Under the settlement, retailerscan charge 2.5 to 3 percent on each transaction. Discuss this issue and develop a report on the pros and cons of retailers adding a surcharge to credit purchases.arrow_forward
- 10) Furniture Co. owed $880.00 for merchandise plus $20.00 for insurance. The bill was due on May 6 and the owner found he was unable to pay it. To keep a good credit rating, he decided to borrow the necessary amount from a bank that charged 9% discount. The maturity date for the loan was July 5. a) How much must he repay the bank? b) What was the cost of borrowing?arrow_forwardi need help figuring this outarrow_forward1. Hernandez decided to borrow $85,000 for 10 months. She found that banks would lend to her only if she had a cosigner on the note-fortunately her uncle was a successful business owner and he agreed to cosign. Bank One offered the funds at a 10% simple discount. Find the maturity value of the loan and the discount. 1. 2. Once Hernandez's uncle agreed to cosign on a loan, Union Bank offered to lend Hernandez $85,000 at 10.5% simple interest. Find the interest and maturity value. 2. 3. Find the loan with the lower interest and find the difference in interest. 3. 4. Find the effective interest rate for both loans to the nearest hundredth of a percent. Bank Interest Loan Amount Effective Rate Bank One $7727.27 $85,000 Union Bank $7437.50 $85,000 4.arrow_forward
- Some businesses called “car-title lenders” offer quick cash loans in exchange for holding the title to your car as collateral (you lose your car if you fail to pay off the loan). In many states, these lenders operate under pawnbroker laws that allow them to charge a fee that is a percentage of the unpaid balance. Suppose you need $2000 in cash, and a car-title lender offers you a loan at an interest rate of 2% per month plus a monthly fee of 20% of the unpaid balance. How much will you owe in interest and fees on your $2000 loan at the end of the first month? Suppose that you pay only the interest and fees each month. How much will you pay over the course of a full year? Suppose that you instead obtain a loan of $2000 from a bank with a term of 3 years and an APR of 10%. What are your monthly payments in that case? Compare these to the payments to the car-title lender.arrow_forwardState Federal Bank (SFB) offers two borrowing options to businesses: (1) a simple interest loan with a 7 percent interest rate and no compensating balance and (2) a discount interest loan with a quoted rate equal to 5 percent that requires a 20 percent compensating balance. If a firm needs a nine-month loan, which option should it choose based on rEAR? Assume the firm normally maintains a negligible checking account balance at the bank. Assume there are 360 days in a year. Do not round intermediate calculations. Round your answers to two decimal places. Option 1, rEAR: % Option 2, rEAR: % Based on rEAR, should be chosen.arrow_forwardIn the picture.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT