Determine the effective rate on bank loan

Reference no: EM1350174

Bosworth Petroleum needs $500,000 to take a cash discount of 2/10 net 70.
A banker will loan the money for 60 days at an interest cost of $8,100.

a. What is the effective rate on the bank loan?

b. How much would it cost (in percentage terms) if Bosworth did not take the cash discount, but paid the bill in 70 days instead of 10 days?

c. Should Bosworth borrow the money to take the discount?

d. If the bank requires 20% compensating balance, how much must Bosworth borrow to end up with the $500,000?

e. What would be the effective interest rate in part d if the interest charge for 60 days were $13,000? Should Bosworth borrow with the 20% compensating balance? (There are no funds to count against the compensating balance requirement.)

Reference no: EM1350174

Questions Cloud

Determining the target cost : Suppose you have just started a business to manufacture your newest invention, the photon gismo. Let's say you believe that after a few years on the market, photon gismos will sell for about $125.

Discuss the concept of investing in bonds : Discuss the concept of investing in bonds. With a definition of what kind of investment a bond is, how bonds are bought and sold, how bond prices are affected by interest rate fluctuations.

Generate a dark fringe at the identical location on screen : A tuning fork of unknown frequency is noted to be higher than one marked 512 hz and lower than one marked 1000 hz. You discover resonance points at .11 m and .53 m. Using 347 m/s for speed of sound what is the frequency of the new fork.

Explain legal life estate in constructing a market-defining : Explain Legal life estate In constructing a market-defining Which of the following questions is designed to identify the target market

Determine the effective rate on bank loan : Bosworth Petroleum requires $500,000 to take a cash discount of 2/10 net 70. A banker will land money for sixty days at an interest cost of $8,100.

Vulnerable to judging others : How do you guard against areas in which you might be vulnerable to judging others? How do you protect your clients, patients, research subjects, or students from being too heavily influenced by your values?

Illustrate what is the income-expenditure multiplier : illustrate what is the income-expenditure multiplier in this economy. Using at least two different quality tools, analyze the data and present your conclusions.

Solving practical finance problems : Consider the current asset accounts individually and as a group. What impact will the following transactions have on each account and current assets in total.

Explain relationship between risk and return are true : Explain If the firm is being operated so as to maximize shareholder wealth concerning the relationship between risk and return are true

User Account

All Pages