What is the effective annual rate of interest on the loan

Assignment Help Financial Management

Reference no: EM131088091

(Cost of a term loan) Temple Freight Forwarding Company needs $300 000 to finance the construction of several prefabricated metal warehouses. The firm that manufactures the warehouses has offered to finance the purchase with a $50 000 down-payment followed by five annual instalments of $69 000 each. Alternatively, Temple’s bank has offered to lend the firm $300 000 to be repaid in 10 half-yearly instalments based on a nominal annual rate of interest of 16%. Finally, the firm could finance the needed $300 000 through a loan from a finance broker requiring a single lump-sum payment of $425 000 in five years.

(a) What is the effective annual rate of interest on the loan from the warehouse manufacturer?

(b) What will the annual payments on the bank loan be?

(d) Based on cost considerations only, which source of financing should Temple select?

Reference no: EM131088091

Questions Cloud

Operate on the it side of the issue : Refer to the Real World Case on Applebee's, Travelocity, and Others in the chapter. What would be the appropriate set of skills that a user of these technologies would possess, as opposed to those that operate on the IT side of the issue?

Calculate the annual OCF for this project : Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $127,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $582,000 p..

Financial options and weighted average cost of capital : Determine two to three (2-3) methods of using stocks and options to create a risk-free hedge portfolio. Support your answer with examples of these methods being used to create a risk-free hedge portfolio.

How many workers will kalamma hire to maximize her profits : How does a minimum wage imposed under monopsony differ in results as compared with a minimum wage imposed under perfect competition? (Assume the minimum wage is above the market-determined wage.)

What is the effective annual rate of interest on the loan : Temple Freight Forwarding Company needs $300 000 to finance the construction of several prefabricated metal warehouses. What is the effective annual rate of interest on the loan from the warehouse manufacturer? What will the annual payments on the ba..

Kinds of databases are important for a business today : Database of information about a firm's internal operations were formerly the only database that were considered to be important to a business. What other kinds of databases are important for a business today?

Organizations plan their ma activity : Although keeping extra infrastructure and network capacity allows for an easier transition, it is also costly to do so. How can companies balance these two sides of the issue? To what extent can organizations plan their M&A activity in order to ju..

What kind of valuation methods should pinewood apply : A large forest industry company Pinewood is considering buying a smaller company White River which has two pulp mills and a significant forest area. What kind of valuation methods should Pinewood apply when determining its purchase price offer to the..

Success of a business enterprise : How would you argue that the success of a business enterprise is significantly influenced by its environment?

User Account

All Pages