What is effective cost of bank financing

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Reference no: EM131520390

1. What is the effective cost of bank financing if the loan amount is $100,000, interest is discounted (advance), a 1% commitment fee is paid up front, and a 9% compensating balance is required? The stated interest rate is 8%.

a. 8.00%

b. 8.98%

c. 10.98%

d. 9.98%

2. A company is offered purchase terms of 2/10, net 40. If it can borrow from its bank for 8%, how long would it need to wait to pay its supplier to bring the cost of vendor financing down to 8%, making it a matter of indifference which financing source was used. I.e., instead of paying in 40 days, when would it pay to reduce the cost of vendor financing to 8%, assuming the vendor would permit it?

a. 83 days

b. 93 days

c. 103 days

d. 113 days

Reference no: EM131520390

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