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In: Finance
A company has a choice between taking a $231k loan or accepting a cash discount terms...
A company has a choice between taking a $231k loan or accepting a cash discount terms 2.78/18, net 76. A creditor will loan the money for 2 years at an interest cost of $12.4k. The creditor requires a 21% compensating balance. However, the company ordinarily maintains 50% of that requirement. If the company takes the loan, it must provide monthly payments to retire the obligation. Note: The term “k” is used to represent thousands (× $1,000). Required: What is the absolute percentage difference in the effective rate of interest (ERI) between the two alternatives? Answer % Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places (for example: 28.31%).
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A company has a choice between taking a $231k loan or accepting a cash discount terms...
A company has a choice between taking a $231k loan or accepting
a cash discount terms 2.78/18, net 76. A creditor will loan the
money for 2 years at an interest cost of $12.4k. The creditor
requires a 21% compensating balance. However, the company
ordinarily maintains 50% of that requirement. If the company takes
the loan, it must provide monthly payments to retire the
obligation. Note: The term “k” is used to represent thousands (×
$1,000). Required: What is the...
Q4) A bank offers you a choice between a 1-year cash loan at 11% pa, or...
Q4) A bank offers you a choice between a 1-year cash loan at 11%
pa, or a 1-year gold loan at 2% pa. For the gold loan, interest and
principal repayment have to be made in gold. The risk-free interest
rate is 9.25% pa and the storage cost for gold is 0.5% pa. Compare
the risk and borrowing costs associated with the cash and gold
loan. Which loan do you prefer? (Hint: Don’t worry about
convenience yield)
a) Distinguish between cash discount and a purchase discount. b) What is the difference between a...
a) Distinguish between cash discount and a purchase
discount.
b) What is the difference between a sales discount and a
purchase discount? Can you illustrate a journal entry for each?
c) What is the purpose of a accounts payable subsidiary ledgers?
How is it used? Why is it used?
1. Cash discount (LO1) Compute the cost of not taking the following cash discounts. a. 2/10,...
1. Cash discount (LO1) Compute the cost of not taking the
following cash discounts. a. 2/10, net 40. b. 2/15, net 30. c.
2/10, net 45. d. 3/10, net 90.
2. Effective rate on discounted loan (LO2) Sol Pine borrows
$5,000 for one year at 13 percent interest. What is the effective
rate of interest if the loan is discounted?
3. Net credit position (LO1) McGriff Dog Food Company normally
takes 27 days to pay for average daily credit purchases...
Explain the differences between a pure discount loan, an interest-only loan, and a level-payment amortized loan....
Explain the differences between a pure discount loan, an
interest-only loan, and a level-payment amortized loan.
Explain interest rate risk.
What are the three elements in every time value of money
calculation?
Name a company that uses each type of discount. Cash discount: Functional discount: Seasonal discount: Rebate:...
Name a company that uses each type of discount.
Cash discount:
Functional discount:
Seasonal discount:
Rebate:
Zero percent financing:
compare and contrast different loan terms, discount loans, interest-only loans, and amortized loans.
compare and contrast different loan terms, discount loans,
interest-only loans, and amortized loans.
What are the major differences between a discount loan and an open market purchase with respect...
What are the major differences between a discount loan and an
open market purchase with respect to their respective effects on
monetary base? Explain using an example and showing the relevant
changes in the balance sheets of the Fed and the Banking System.
Between these two actions, is one preferred to the other by the
Fed? Why or why not?
Write name a specific company that uses each type of discount. Cash discount: Functional discount: Seasonal...
Write name a specific company that uses each type of
discount.
Cash discount:
Functional discount:
Seasonal discount:
Rebate:
Zero percent financing:
ABC Inc. has a choice between two mutually exclusive projects, Project I has cash flows of...
ABC Inc. has a choice between two mutually exclusive projects,
Project I has cash flows of −$48,000, $20,200, $20,500, and $19,000
for Years 0 to 3, respectively. Project II has a cost of $45,000
and annual cash inflows of $18,500 for 3 years. At what rate would
you be indifferent between these two projects? Which project will
you take if the required return is 10%. (1+1 points)
Answer
ABC Inc. needs 150,000 boxes of parts per year over the next...
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