Question
In: Advanced Math
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a...
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $140,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 19 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 14 percent. Note: Interest is not paid in advance (discounted).
a. If Southwest normally maintains a $26,600 to $40,600 balance in its checking account with FNB of Dallas, what is the effective cost of credit under the line-of-credit agreement when the maximum loan amount is used for a full year?
b. Compute the effective cost of credit if the firm borrows the compensating balance and the maximum possible amount under the loan agreement. Again, assume the full amount of the loan is outstanding for a whole year.
Solutions
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Colby Messinger answered 3 years agoRelated Solutions
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a...
(Cost of short-term bank loan) On July 1, 2015, the Southwest
Forging Corporation arranged for a line of credit with the First
National Bank (FNB) of Dallas. The terms of the agreement call for
a $120,000 maximum loan with interest set at 2 percent over prime.
In addition, the firm has to maintain a 19 percent compensating
balance in its demand deposit account throughout the year. The
prime rate is currently 12 percent. Note: Interest is not paid in
advance...
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a...
(Cost of short-term bank loan) On July 1, 2015, the Southwest
Forging Corporation arranged for a line of credit with the First
National Bank (FNB) of Dallas. The terms of the agreement call for
a $100,000 maximum loan with interest set at 1 percent over prime.
In addition, the firm has to maintain a 20 percent compensating
balance in its demand deposit account throughout the year. The
prime rate is currently 4.5 percent.
If Southwest normally maintains a $20,000 to...
(Cost of short-term bank loan) On July 1, 2015, the Southwest Forging Corporation arranged for a...
(Cost of short-term bank loan) On July 1, 2015, the
Southwest Forging Corporation arranged for a line of credit with
the First National Bank (FNB) of Dallas. The terms of the
agreement call for a $110 comma 000 maximum loan with interest set
at 2 percent over prime. In addition, the firm has to maintain a
20 percent compensating balance in its demand deposit account
throughout the year. The prime rate is currently 12 percent. Note:
Interest is not paid...
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The...
Paymaster Enterprises has arranged to finance its seasonal
working-capital needs with a short-term bank loan. The loan will
carry a rate of 12 percent per annum with interest paid in advance
(discounted). In addition, Paymaster must maintain a minimum
demand deposit with the bank of 10 percent of the loan balance
throughout the term of the loan. If Paymaster plans to borrow
$110,000 for a period of 5 months, what is the annualized cost of
the bank loan?
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The...
Paymaster Enterprises has arranged to finance its seasonal
working-capital needs with a short-term bank loan. The loan will
carry a rate of
14 percent per annum with interest paid in advance
(discounted). In addition, Paymaster must maintain a minimum
demand deposit with the bank of 11 percent of the loan balance
throughout the term of the loan. If Paymaster plans to borrow
$120,000 for a period of 6 months, what is the annualized cost of
the bank loan?
The annualized...
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The...
Paymaster Enterprises has arranged to finance its seasonal
working-capital needs with a short-term bank loan. The loan will
carry a rate of 14 percent per annum with interest paid in advance
(discounted). In addition, Paymaster must maintain a minimum
demand deposit with the bank of 11 percent of the loan balance
throughout the term of the loan. If Paymaster plans to borrow $100
comma 000 for a period of 6 months, what is the annualized cost of
the bank loan?
(Cost of a short-term bank loan) Jimmy Hale is the owner and operator of the grain...
(Cost of a short-term bank loan) Jimmy Hale is the owner and
operator of the grain elevator in Brownfield, Texas, where he has
lived for most of his 62 years. The rains during the spring have
been the best in a decade, and Mr. Hale is expecting a bumper
wheat crop. This has prompted him to rethink his current financing
sources. He now believes he will need an additional $220,000 for
the 3-month period ending with the close of the...
A firm is finance by a short term bank loan, long term corpoatte binds and equity....
A
firm is finance by a short term bank loan, long term corpoatte
binds and equity. The market value of the bank loan is 140,200 and
the interest rate paid on it is 6.25%. The market value of
corporate bonds is $305,300 and the interest rate paid on them is
8.25%. The expected rate of return on the companys share is 15.25%.
There are 70,000 shares outstandig, and the shares are trading at
$5. The corporate tax rate is 30%...
) Reuth Corporation plans to raise $2 million to pay off its existing short-term bank loan of...
) Reuth Corporation plans to raise $2 million to pay
off its existing short-term bank loan of $600,000 and to increase
total assets by $1,400,000. The bank loan bears an
interest rate of 10 percent. The company's president owns 51.5%
percent of the 4,000,000 shares of common stock and wishes to
maintain control of the company. The company's tax rate is 20
percent. Balance sheet information is shown
below.
The company is considering two alternatives to raise the $2
million: (1) sell common...
1.Assume you have just arranged a loan from your bank in the amount of $10,000. The...
1.Assume you have just arranged a loan from your bank in the
amount of $10,000. The bank will allow you to repay the loan with a
lump sum payment of $11,500 in two years. No other payments will be
made during this period. What is the implied EAR of this lending
arrangement? (Do not round intermediate
calculations. Round the final answer to 2 decimal places. Omit the
% sign in your response. For example, an answer of 15.39% should be...
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