Question

In: Accounting

Neveready Flashlights, Inc. needs $510,000 to take a cash discount of 2/10, net 70. A banker...

Neveready Flashlights, Inc. needs $510,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at an interest cost of $7,600.

a.

What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

  

b.

How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 70 days instead of 10 days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

c. Should the firm borrow the money to take the discount?
  • Yes

  • No

   

d.

If the banker requires a 12 percent compensating balance, how much must the firm borrow to end up with the $510,000? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

e-1.

What would be the effective interest rate in part d if the interest charge for 60 days were $11,000? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

e-2.

Should the firm borrow with the 17 percent compensating balance? (The firm has no funds to count against the compensating balance requirement.)

  • Yes

  • No

  

Solutions

Expert Solution

If you have any doubt, please comment in comment section below


Related Solutions

Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker...
Neveready Flashlights Inc. needs $345,000 to take a cash discount of 2/11, net 76. A banker will loan the money for 65 days at an interest cost of $12,100.   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.)    b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid...
Neveready Flashlights Inc. needs $302,000 to take a cashdiscount of 2/19, net 71. A banker...
Neveready Flashlights Inc. needs $302,000 to take a cash discount of 2/19, net 71. A banker will loan the money for 52 days at an interest cost of $11,800.  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.)   b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill...
Newsome Inc. buys on terms of 4/10, net 45. It does not take the discount, and...
Newsome Inc. buys on terms of 4/10, net 45. It does not take the discount, and it generally pays after 55 days. What is the effective (not nominal) annual percentage cost of its non-free trade credit, based on a 365-day year? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
The cost of giving up a cash discount under the terms of sale​ 1/10 net 60​...
The cost of giving up a cash discount under the terms of sale​ 1/10 net 60​ (assume a 365day​ year) is A. 7.4 B. ​ 6.1% C. ​ 7.2% D. ​14.7% On its 2019 balance​ sheet, Sherman Books showed a balance of retained earnings equal to​ $510 million. On its 2020 balance​ sheet, the balance of retained earnings was equal to​ $520 million. Which of the following statements is most​ correct? A. If the company sold​ $10 million of newly...
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...
Judy’s Rugs, Inc. needs an additional $50,000 to support an expansion of fixed assets. A banker...
Judy’s Rugs, Inc. needs an additional $50,000 to support an expansion of fixed assets. A banker has offered to loan the money at 14 percent interest but also requires a compensating balance of 25 percent of the loan amount. What is the effective rate of the one year loan?
During 2018, HomeVideo, Inc. recorded all cash receipts and cash disbursements. However, HomeVideo, Inc.’s banker is...
During 2018, HomeVideo, Inc. recorded all cash receipts and cash disbursements. However, HomeVideo, Inc.’s banker is requiring an income statement and balance sheet prepared on an accrual basis. The following is a recap of the cash receipts for 2018: Collections from customers $      356,800 Proceeds from bank loan            75,000 Proceeds from sale of common stock          100,000 $      531,800 The cash disbursements data is available on the attached Excel sheet. In addition, HomeVideo, Inc.’s payroll disbursements for wages totaled $105,200. The data was...
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $510,000 cash. Immediately after...
Adams, Inc., acquires Clay Corporation on January 1, 2017, in exchange for $510,000 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $440,000. Credit balances are indicated by parentheses. Adams Clay Current assets $ 300,000 $ 220,000 Investment in Clay 510,000 0 Equipment 600,000 390,000 Liabilities (200,000) (160,000) Common stock (350,000) (150,000) Retained earnings, 1/1/17 (860,000) (300,000) In 2017, Clay earns a net income of $55,000...
when offered terms on 2/10, net 30, Young Brand has always taken the discount, does this...
when offered terms on 2/10, net 30, Young Brand has always taken the discount, does this makes financial sense?
Adams Manufacturing Inc. buys $11.4 million of materials (net of discounts) on terms of 2/10, net...
Adams Manufacturing Inc. buys $11.4 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent. Use 365 day in a year. ? $    What would be...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT