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What is the annual rate on the bank loan

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Question - Burt's Department Store needs $650,000 to take a cash discount of 1.50/20, net 60. A banker will loan the money for 40 days at an interest cost of $15,000.

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

b. How much would it cost (in percentage terms) if Burt's did not take the cash discount and paid the bill in 60 days instead of 20 days?

c. Should Burt's borrow the money to take the discount?

d. If the banker requires a 10 percent compensating balance, how much must Burt's borrow to end up with the $650,000?

e-1. What would be the interest rate in part d if the interest charge for 40 days were $21,750?

e-2. Should Burt's borrow with the 10 percent compensating balance?

Reference no: EM132767623

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