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Problem - A bank offers your firm a revolving credit arrangement for up to $78 million at an interest rate of 1.95% per quarter. The bank also requires you to maintain a compensating balance of 6% against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.30% per quarter and assume that the bank uses compound interest on its revolving credit loans.
a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your ?rm does not use it during the year?
b. What is your effective annual interest rate on the lending arrangement if you borrow $44 million immediately and repay it in one year?
c. What is your effective annual interest rate if you borrow $78 million immediately and repay it in one year?
Jane buys furniture at the value of R10000. She lends the money on the 1st of February at a financial institute. Determine the total value that has to be paid back on 1July 2015 and How many months will it take Jane to pay the loan back
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Mustang Enterprises, Inc., has been considering the purchase of a new manufacturing facility, Calculate the NPV of the project.
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