Calculating the cost of? short-term financing

Assignment Help Financial Management

Reference no: EM131537794

(Calculating the cost of? short-term financing) The R. Morin Construction Company needs to borrow ?$100,000 to help finance the cost of a new ?$150,000 hydraulic crane used in the? firm's commercial construction business. The crane will pay for itself in one? year, and the firm is considering the following alternatives for financing its? purchase:

Alternative A. The? firm's bank has agreed to lend the ?$100,000 at a rate of 13 percent. Interest would be? discounted, and a 16 percent compensating balance would be required.? However, the? compensating-balance requirement is not binding on the firm because it normally maintains a minimum demand deposit? (checking account) balance of ?$25,000 in the bank.

Alternative B. The equipment dealer has agreed to finance the equipment with a? 1-year loan. The ?$100,000 loan requires payment of principal and interest totaling ?$117,430.

a. Which alternative should Morin? select?

b. If the? bank's compensating-balance requirement had necessitated idle demand deposits equal to16 percent of the? loan, what effect would this have had on the cost of the bank loan? alternative?

Reference no: EM131537794

Questions Cloud

Create a flowchart of the process to conduct research : Create a flowchart of the process to conduct research and collect data for decision making (which does not have to fit any specific process form

Estimate the net profit for the first year : Two friends, Guppy and Jobling, are engaged in preliminary discussions with a view to setting up in business as retailers.

What is the annualized cost of forgoing discount assuming : what is the annualized cost of forgoing the discount assuming a 360 day year?

Coupon bonds on the market-what is current bond price : Aloha Inc. has 4.5 percent coupon bonds on the market that have 4 years left to maturity. what is the current bond price?

Calculating the cost of? short-term financing : The? firm's bank has agreed to lend the ?$100,000 at a rate of 13 percent. Interest would be? discounted and 16 percent compensating balance would be required

Determining the issues and the client stake : Research that focuses upon determining the issues and the client's stake in those issues is ________.

What is the annualized cost of the bank loan : If Paymaster plans to borrow $80,000 for a period of 6 months, what is the annualized cost of the bank loan?

What is cost of equity capital for ultra flex diving boards : what is the cost of equity capital for Ultra Flex Diving Boards if the price of its common shares is currently $26.00?

Calculate the accrued interest-calculate the dirty price : Calculate the accrued interest. To calculate the dirty price, you need the clean or quoted price.

User Account

All Pages