Reference no: EM133091197

Questions -

Q1. Regal Corp. purchased an item on credit with terms of 3/10, n/45. Using a 360-day year, the company's annual interest cost of foregoing the cash discount and making payment on the last day of the credit period is?

Q2. Donner Co. intends to acquire a new equipment to increase its capacity. It is estimated to cost P2.4M. A bank can finance the acquisition at 10% discounted interest. Alternatively, the company may just delay payment to its suppliers. Presently, the company buys under terms of 2/10, net 40, but management believes payment count be delayed 30 additional days, without penalty; that is payment could be made in 70 days. Assuming 360 days, what should the company do?Trade credit 2/100-2 x 360/70-10 = 12.24% use the given settlement day of 70 if given, if not use the 40 day net.

Q3. Your bank will lend you P2,000 for 45 days at a cost of P25 interest. What is your effective rate of interest?

Q4. Sol is going to borrow P3,000 for one year at 8% interest. What is the effective rate or interest if the loan is discounted?

Q5. Logan Co. plans to borrow P200,000 for one year. The bank will lend the money at 10% interest and require a compensating balance of 20%. What is the effective interest rate? 10%/80%= 12.5% What is the effective interest rate if the loan is discounted?

Q6. On January 1, Paul Company borrows P2,000,000 from National Bank at 11% annual interest. Paul is required to keep a compensatory balance of P200,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Paul pays on its P2,000,000 loan is?

Q7. A firm is offered trade credit terms of 3/15, net 45 days. The firm does not take the discount, and it pays after 67 days. What is the annual cost of not taking the discount? (Assume a 365-day year.)

Q8. Dixie Tours Inc. buys on terms of 2/15, net 30 days. It does not take discounts, and it typically pays 35 days after the invoice date. Net purchases amount to P720,000 per year. What is the annual cost of its non-free trade credit? (Assume a 365-day year.)

Q9. Your company has been offered credit terms on its purchases of 4/30, net 90 days. What will be the annual cost of trade credit if your company pays on the 35th day after receiving the invoice? (Assume a 365-day year.)

Q10. Phillips Glass Company buys on terms of 2/15, net 30 days. It does not take discounts, and it typically pays 30 days after the invoice date. Net purchases amount to P730,000 per year. On average, how much "free" trade credit does Phillips receive during the year? (Assume a 365-day year.)

Q11. HBC Inc. buys on terms of 2/10, net 30 days. It does not take discounts, and it typically pays 30 days after the invoice date. Net purchases amount to P1,750,000 per year. On average, how much "free" trade credit does HBC receive during the year? (Assume a 365-day year.)

Q12. Picard Orchards requires a P100,000 annual loan in order to pay laborers to tend and harvest its fruit crop. Picard borrows on a discount interest basis at a nominal annual rate of 11 percent. If Picard must actually receive P100,000 net proceeds to finance its crop, then what must be the face value of the note?

Q13. Viking Farms harvests crops in roughly 90-day cycles based on a 360-day year. The firm receives payment from its harvests sometime after shipment. Due in part to the firm's rapid growth, it has been borrowing to finance its harvests using 90-day bank notes on which the firm pays 12 percent(3% for 90 days) discount interest. If the firm requires P60,000 in proceeds from each note, what must be the face value of each note?