Solution-Recompute the annual cost of interest

Recompute the annual cost of interest

Reference no: EM132485091

Problem: Ajax Box Company is negotiating with two banks for a $100,000 loan. Midland Bank requires a 20 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Central Bank requires a 10 percent compensating balance and does not discount the loan, but it wants to be paid back in 12 monthly instalments. The stated rate at both banks is 8 percent. Compensating balances and any discounts will be subtracted from the $100,000 in determining the available funds in part a.

Which loan should Ajax accept?
Recompute the annual cost of interest, assuming Ajax ordinarily maintains $20,000 at each bank in deposits that will serve as compensating balances.
How much did the compensating balances inflate the percentage interest costs? Does your choice of banks change if the assumption in part b is correct?

Reference no: EM132485091

Questions Cloud

Calculate the expected return and the standard deviation : Calculate the expected return and the standard deviation of the portfolio, given a correlation coefficient between Skysong and Concord of 0.35.

Calculate the ex ante expected return on pakcom : Calculate the ex ante expected return on PakCom. (Round answer to 2 decimal places, e.g. 15.25%.)

What is the yield on treasury securities : What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.

What rate of return will they need : Suppose a good aunt or uncle wants to invest money today so that their 1 year old will have $40,000 17 years from now for college.

Recompute the annual cost of interest : Recompute the annual cost of interest, assuming Ajax ordinarily maintains $20,000 at each bank in deposits that will serve as compensating balances.

Is issue action to be taken in regards to IFRS policy : Is issue one appropriate action to be taken in regards to IFRS policy and if so why? and for issue two what appropriate according to IFRS

What is the economic order quantity-higgins athletic wear : Problem: Higgins Athletic Wear has expected sales of 22,500 units a year, carrying costs of $1.50 per unit, and an ordering cost of $3.00 per order.

Evaluate the relationship between the organizational mission : Identify all of the stakeholders that are involved and impacted by the organization and Analyze the mission and vision statements of the organization

Construct a monthly cash budget for cape chemical : Construct a monthly cash budget for Cape Chemical for the period January through December 2007. Assume that all cash flows occur on the 15th of each month

User Account

All Pages

Recompute the annual cost of interest

Reference no: EM132485091

Reference no: EM132485091

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT