What is the ear

Assignment Help Finance Basics
Reference no: EM133121271

Your firm needs to raise some cash for three quarters. It will pay all interest owed at the time of maturity. There are three options available:

Option1. A $500,000 bank loan with a 3% APR and a 1.5% origination fee deducted from the principal

Option 2. A $500,000 bank loan with a 5% APR and a 15% compensating balance to be kept in an account at the lending bank with a 2% APR

Option 3. Commercial papers with $500,000 maturity value to be sold at $480,000

What is the EAR (with quarterly compounding) for

1. Option 1?

2. Option 2?

3. Option 3?

4. Which option should the firm choose? Why?

Reference no: EM133121271

Questions Cloud

What is the total cost : Could you please help me with the following questions?
Determine the after-tax cost of the bond : Bisousatoi Corporation needs RM5,000,000 for its business expansion in Singapore. The firm can raise funds by issuing bonds with a 10 percent coupons.
What is the effective annual rate of return : These solar panels will save you $140 a month. What is the effective annual rate of return on this investment?
What is larry accounts receivable turnover : Larry's Lawn Equipment Company gives terms of 2/10, n/30. Larry has annual credit sales of $500,000 and average accounts receivable of $60,000.
What is the ear : Your firm needs to raise some cash for three quarters. It will pay all interest owed at the time of maturity. There are three options available:
Comparison of the present value : In our class example, I simplified the "annuity" prize option by assuming level, equal annual payments. Actually, this annuity prize option us now on an annuiti
What is the present value of new project : a) If Eastern adjusts its debt continuously to maintain a constant debt-equity ratio of 50%, then what is the present value of this new project?
Simple payback period for the option : It will require $4,000 of maintenance per year. The annual utility savings are to be $9,000. What is the simple payback period for the option?
Structural responses of an arbitrary wire : Structural responses of an arbitrary wire - What assumptions are made when deriving the flexure formula for beams? How do these assumptions relate

Reviews

Write a Review

Finance Basics Questions & Answers

  Suppose interest rate parity holds and the current

use the information below to answer the following questions.nbspcurrency per u.s. canada dollar1.23896-months

  Asuming that oglesby industries is recapitalized

oglesby industries currently finances operations using a financial structure that is one hundred percent

  Last year vagabond veggies had an roe of 18 the net profit

last year vagabond veggies had an roe of 18. the net profit margin was 8 with a total asset turnover of 1.75. what is

  Think of specific health risks

Can you think of specific health risks that might be associated with products that were not made with genetically engineered bacteria?

  Higher risk-adjusted returns

Suppose the following information over a five year period: Estimate which stock has higher risk-adjusted returns when using the Sharpe index.

  Advantages and disadvantages of payback period

What do you think are the advantages and disadvantages of payback period? Which is a better indicator, discounted payback or payback period?

  What was return on invested capital

Income tax is paid at a 26% average annual rate. What was Return on Invested Capital (ROIC) for the year?

  Determine the net pretax benefit to the firm

Assuming that High-Rise can earn 6 percent on short-term investments and that the cost of sending an employee to New York to present the check for payment is $350, determine the following: The net (pretax) benefit to the firm of using this special ha..

  Developing a new staff recruitment and selection process

When developing a new staff recruitment and selection process, identify who the projects' stakeholders are.

  What is the current value of operations

The weighted average cost of capital is WACC = 10.1%, and the constant growth rate is g = 4.0%. What is the current value of operations?

  Suppose you begin saving for your retirement by depositing

Suppose you begin saving for your retirement by depositing $2000. per year in an ira .if the interest rate is 7.5 % how much will you have in 40 years.

  What is the npv of project

Dog Up! Franks is looking at a new sausage system with an installed cost of $480,000. This cost will be depreciated straight-line to zero over the project's fiv

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd