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plans? (Input your answers as a percent rounded to 2 decimal places.)
| Effective Rate of Interest | |
| a. Annual payment | % |
| b. Semiannual payments | % |
| c.Quarterly payments | % |
| d. Monthly payments | % |
Question
for 54 days at an interest cost of $14,500.
| a. | What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Effective rate of interest | % |
| b. | How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 72 days instead of 18 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Cost of not taking a cash discount | % |
| c. | Should the firm borrow the money to take the discount? |
| NoYes |
| d. | If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $359,000? |
| Amount to be borrowed | $ |
| e-1. | What would be the effective interest rate in part d if the interest charge for 54 days were $15,900?(Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Effective rate of interest | % |
| e-2. | Should the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.) |
| YesNo |
Question
balance of 24 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 12 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 9 percent. Compensating balances will be subtracted from the $157,000 in determining the available funds in part a.
| a-1. | Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) |
| Effective Rate of Interest | |
| Fidelity Bank | % |
| Southwest Bank | % |
| a-2. | Which loan should Summit accept? |
| Southwest BankFidelity Bank |
| b. | Recompute the effective cost of interest, assuming that Summit ordinarily maintains $37,680 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) |
| Effective Rate of Interest | |
| Fidelity Bank | % |
| Southwest Bank | % |
| c. | Does your choice of banks change if the assumption in part b is correct? |
| YesNo |
Question
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