What is the effective rate on the bank loan

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Reference no: EM131910868

Neveready Flashlights Inc. needs $329,000 to take a cash discount of 3/17, net 72. A banker will loan the money for 55 days at an interest cost of $10,300.

a. What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest %

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 72 days instead of 17 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of not taking a cash discount %

c. Should the firm borrow the money to take the discount? No Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $329,000? Amount to be borrowed $

e-1. What would be the effective interest rate in part d if the interest charge for 55 days were $6,800? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest %

e-2. Should the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.) No Yes

Reference no: EM131910868

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