Foundations Of Financial Management
17th Edition
ISBN: 9781260013917
Author: BLOCK, Stanley B., HIRT, Geoffrey A., Danielsen, Bartley R.
Publisher: Mcgraw-hill Education,
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Chapter 8, Problem 19P
Zerox Copying Company plans to borrow
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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.)
ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150000 per year. The entity earns P30000000 in sales, 10% of which are cash. The entity has a 365-day per year and a minimum required rate of return of 10%. the current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease to 30 days. How much is the net benefit or cost of this option?
Resty Corporation needs P400,000 additional financing. The company is considering the choice of financing with a bank or a factor. The bank loan carries a 20 percent interest rate on a discount basis with a required compensating balance of 16 percent. The factor charges a 3 percent commission on invoices purchased monthly. The interest rate associated with these invoices is 11 percent with interest deductible in advance. If a factor is used, there will be a monthly savings of P1,500 per month in credit department costs. Further, the expense of an uncollectible account of 2 percent on the factored receivables will not exist. (A) What amount of principal must the company borrow from the bank to receive P400,000 in proceeds? (B) What amount of accounts receivable must be factored to net the firm P400,000?
choose the bullet with the correct answer
(A) P325,000.00 and (B) P265,116.00
(A) P525,000.00 and (B) P465,116.00
(A) P525,000.00 and (B) P265,116.00
(A) P625,000.00 and (B)…
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...Ch. 8 - Prob. 2WECh. 8 - Prob. 3WE
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- A bank has made a 3-year $10 million dollar loan that pays annual interest of 8%. The principal is due at the end of the third year. A. The bank is willing to sell this loan with recourse at 8.5% discount rate. What should it expect for selling this loan? B. It also has the option of selling this loan without recourse at a discount rate of 8.75%. What should it expect for selling this loan? C. If the bank expects a ½% probability of default on this loan, is it better off selling this loan with or without recourse? It expects to receive no interest payments or principal if the loan is defaulted. D. Why do you think that the interest rate in part A is different from the interest rate in part B?arrow_forwardPlease teach me how to solve this, thanks! ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150,000 per year. The entity earns P30,000,000 in sales, 10% of which are cash. The entity has a 365-day year and a minimum required rate of return of 10%. The current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease by 30 days. How much is the net benefit or (cost) of this option?arrow_forwardAutomotive 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?arrow_forward
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