Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 8, Problem 12P
Maxim Air Filters Inc. plans to borrow
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You plan to borrow $10,000 from the bank. For a four-year loan, the bank requires annual end-of-year payments of $3,223.73. What is the annual interest rate on this loan?
Zerox Copying Company plans to borrow $174,000. New Jersey National Bank will lend the money at one-half percentage point over the prime rate at the time of 12.50 percent (13 percent total) and requires a compensating balance of 24 percent. The principal in this case will be funds that the firm can effectively use in the business. This loan is for one year. a. What is the effective rate of interest? (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.)
b. What would the effective rate be if Zerox were required to make four quarterly payments to retire the loan? (Input your answer as a percent rounded to 2 decimal places.)
Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds as a discount loan with an annual rate of 8%. Automotive Accessories maintains no deposit balances in either bank, and repayment will be a single lump sum at maturity.
a.What is the effective annual rate of interest on each loan?
b.What can Automotive Accessories do to reduce the interest rates on these loans?
Chapter 8 Solutions
Foundations of Financial Management
Ch. 8 - Under what circumstances would it be advisable to...Ch. 8 - Discuss the relative use of credit between large...Ch. 8 - Prob. 3DQCh. 8 - Prob. 4DQCh. 8 - Prob. 5DQCh. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Compute the cost of not taking the following cash...Ch. 8 - Regis Clothiers can borrow from its bank at 17...Ch. 8 - Simmons Corp. can borrow from its bank at 17...Ch. 8 - Your bank will lend you $4,000 for 45 days at a...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Mary Ott is going to borrow $10,400 for 120 days...Ch. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - McGriff Dog Food Company normally takes 27 days to...Ch. 8 - Maxim Air Filters Inc. plans to borrow $300,000...Ch. 8 - Digital Access Inc. needs $400,000 in funds for a...Ch. 8 - Carey Company is borrowing $200,000 for one year...Ch. 8 - Randall Corporation plans to borrow $233,000 for...Ch. 8 - Prob. 16PCh. 8 - Your company plans to borrow $13 million for 12...Ch. 8 - If you borrow $5,300 at $400 interest for one...Ch. 8 - Zerox Copying Company plans to borrow $172,000 ....Ch. 8 - Prob. 20PCh. 8 - Mr. Hugh Warner is a very cautious businessman....Ch. 8 - The Reynolds Corporation buys from its suppliers...Ch. 8 - Prob. 23PCh. 8 - Neveready Flashlights Inc. needs $340,000 to take...Ch. 8 - Harper Engine Company needs $631,000 to take a...Ch. 8 - Summit Record Company is negotiating with two...Ch. 8 - Charming Paper Company sells to the 12 accounts...Ch. 8 - The treasurer for Pittsburgh Iron Works wishes to...
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.Similar questions
- Van Buren Resources Inc. is considering borrowing $120,000 for 168 days from its bank. Van Buren will pay $7,000 of interest at maturity, and it will repay the $120,000 of principal at maturity. Assume that there are 365 days per year. Calculate the loan’s annual financing cost. Round your answer to two decimal places. % Calculate the loan’s annual percentage rate. Round your answer to two decimal places. %arrow_forwardA local finance company quotes an interest rate of 15.6 percent on one- year loans. So, if you borrow $36,000, the interest for the year will be $5,616. Because you must repay a total of $41,616 in one year, the finance company requires you to pay $41,616/12, or $3,468.00 per month over the next 12 months. a. What rate would legally have to be quoted? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the effective annual rate? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. APR b. EAR % %arrow_forwardA local finance company quotes an interest rate of 16.7 percent on one-year loans. So, if you borrow $25,000, the interest for the year will be $4,175. Because you must repay a total of $29,175 in one year, the finance company requires you to pay $29,175/12, or $2,431.25 per month over the next 12 months. Is the interest rate on this loan 16.7 percent? What rate would legally have to be quoted? What is the effective annual rate?arrow_forward
- A local finance company quotes a 12 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $3,600. Because you must repay a total of $33,600 in one year, the finance company requires you to pay $33,600/12, or $2,800.00, per month over the next 12 months. a.What rate would legally have to be quoted? b.What is the effective annual rate?arrow_forwardVan Buren Resources Inc. is considering borrowing $90,000 for 175 days from its bank. Van Buren will pay $3,000 of interest at maturity, and it will repay the $90,000 of principal at maturity. Assume that there are 365 days per year. Calculate the loan’s annual financing cost. Round your answer to two decimal places. % Calculate the loan’s annual percentage rate. Round your answer to two decimal places. % What is the reason for the difference in your answers to Parts a and b? The does not consider compounding effects.arrow_forwardCloud Venture has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed. What is the effective interest rate if the firm needs $58,000 for one year to finance a fixed asset purchase?arrow_forward
- A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $5,100. Because you must repay a total of $35,100 in one year, the finance company requires you to pay $35,100/12, or $2,925.00, per month over the next 12 months. a. What rate would legally have to be quoted? b. What is the effective annual rate?arrow_forwardVan Buren Resources Inc. is considering borrowing $100,000 for 182 days from its bank. Van Buren will pay $6,000 of interest at maturity, and it will repay the $100,000 of principal at maturity. a. Calculate the loan’s annual financing cost. b. Calculate the loan’s annual percentage rate. c. What is the reason for the difference in your answers to Parts a and b?arrow_forwardA local finance company quotes an interest rate of 17.2% on one-year loans. So, if you borrow $25,000, the interest for the year will be $4,300. Because you must repay a total of $29,300 in one year, the finance company requires you to pay $29,300/12, or $2,441.67 per month over the next 12 months. What is the effective annual rate?arrow_forward
- Paymaster Enterprises has arranged to finance its seasonal working capital needs with a short term bank loan. The loan will carry a rate of 0.072 per anum paid in advance (discounted). If Paymaster plans to borrow $760000 for a period of 7 months, what is the cost of the loan.arrow_forwardSuppose you borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value What effective annual interest rate are yo being chargedarrow_forwardNational Co. needs to borrow P300,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with a 10% interest rate subject to a 20% of loan compensating balance. Currently, National Co. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will National Co. need to borrow?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
What is a mortgage; Author: Kris Krohn;https://www.youtube.com/watch?v=CFjY-58ooi0;License: Standard YouTube License, CC-BY
Topic 10 Accounting for Liabilities Mortgage Payable; Author: Accounting Thinker;https://www.youtube.com/watch?v=EPJOphrbArM;License: Standard YouTube License, CC-BY