Alternative is the cheapest source of financing

Assignment Help Financial Management
Reference no: EM131322645

Task

Your startup needs a $10,000 loan for the next 20 days. It is trying to decide which of three alternatives to use:

Alternative A: Forgo the discount on its trade credit agreement that offers terms of 2.0 /10, net 20.

Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 20 days at an APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means your start-up must borrow even more than the $10,000.

Alternative C: Borrow the money from Bank B, which has offered to lend the firm $10,000 for 20 days at an APR of 14%. The loan has a 1% loan origination fee.

For alternative A, the annual rate is %. (round to two decimals)

For alternative B, the annual rate is %. (round to two decimals)

For alternative C, the annual rate is %. (round to two decimals)

Which alternative is the cheapest source of financing for Hand-to-Mouth?

It is alternative . (fill in "A", "B", or "C" without quotes)

Reference no: EM131322645

Questions Cloud

How price effect contributes to the fact that for a monopoly : What is the value at point (b)and why is it important? Explain your understanding of how price effect contributes to the fact that, for a monopoly, marginal revenue is always less than the price.
How would you detect and correct a restricted range : What is a restricted range, and what effect does it have on correlation coefficients? How would you detect and correct a restricted range?
Which mental disorder character symptoms best represent : Based on the DSM-5, which mental disorder do you believe the character's symptoms best represent? Are there any indications that suggest the character may have a different mental disorder other than the one you have listed in C
What impact does reliability have on correlation : Do outliers increase or decrease the magnitude of correlation coefficients?- What impact does reliability have on correlation?
Alternative is the cheapest source of financing : Your startup needs a $10,000 loan for the next 20 days. It is trying to decide which of three alternatives to use: Forgo the discount on its trade credit agreement that offers terms of 2.0 /10, net 20. Borrow the money from Bank B, which has offered ..
When is the spearman rank order correlation used : How can partial correlation help researchers explore possible causal relationships among correlated variables?- When is the Spearman rank-order correlation used?
A moderate correlation between peoples scores : If you were going to conduct the study again, what could you do to provide a more powerful test of your hypothesis?
Evaluate strengths and weaknesses of this ethical theory : Explain the important differences between contemporary ethical relativism and the Christian worldview. Define, discuss, and defend (or deny) Natural Law, as well as evaluate strengths and weaknesses of this ethical theory
Derivation of a quantitative criterion on quasi-neutrality : Show that the approximate diffusion equations derived for a constant electric field, (750.3A) and (750.4A), are also valid if E is not spatially constant but the region is quasi-neutral. This enables a derivation of a quantitative criterion on qua..

Reviews

Write a Review

Financial Management Questions & Answers

  Determining the cost of capital-cost of preferred stock

The cost of preferred stock, rp, used in the weighted average cost of capital equation is calculated as the preferred dividend, Dp, divided by the current price of the preferred stock, Pp. ,tax adjustment is made when calculating rp because preferred..

  Forecast turns out to be correct and its price-to-earnings

May Inc. just reported a net income of $8000000 and its current stock price is $34.00 per share. May Inc. is forecasting an increase of 25% of its net income next year, but it also expects it will have to issue 1,500,000 new shares of stock. If May I..

  What was its interest expense

Molteni Motors Inc. recently reported $3.25 million of net income. Its EBIT was $7.75 million, and its tax rate was 35%. What was its interest expense? Round your answer to the nearest dollar. Enter your answer in dollars. For example, an answer of $..

  What is the macaulay duration coupon bond

What is the Macaulay duration of a 5.2 percent coupon bond with eight years to maturity and a current price of $1,053.10? What is the modified duration?

  Required rate of return on the bond

A 10-year bond paying 8% annual coupons pays $1000 at maturity. If the required rate of return on the bond is 7%, then today the bond will sell (rounded to the nearest cent) for?

  Target capital structure-what is the aftertax cost of debt

Mullineaux Corporation has a target capital structure of 60 percent common stock, 15 percent preferred stock, and 25 percent debt. Its cost of equity is 10 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. W..

  Square box is considering two independent projects

The Square Box is considering two independent projects, both of which have an initial cost of $18,000. The cash inflows of Project A are $3,000, $7,000, and $10,000 over the next three years, respectively.

  Discounting-reinvestment and combination approach

Chamberlain Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 10 percent and a reinvestment rate of 7 percent on all of its projects. Cashflows are as follows: year 0 (16400) year one 7500, year two 8700..

  What is difference in present value-discount rate

You are scheduled to receive annual payments of $3600 for each of the next 12 years. The discount rate is 8%. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

  What is the current price of the stock

Ginger Baker, Inc. just paid an annual dividend of $3 a share and this dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the discount rate for Ginger Baker is 9%, what is the current price of the stock?

  Financial update-including taxes and wages payable

Financial Update as of June 15. you don’t need to spend any money for new equipment in your exisiting cafes; however, you do need $22,050 of additional cash -you also need to purchase $11,760 in additional supplies- such as cloth tablecloths and napk..

  Investment to cover cost of your child college education

Assume the total cost of a college education will be $200,000 when your child enters college in 16 years. You presently have $67,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college ed..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd