please check out the attachment..Problem 8-1 Cash discount [LO1]

Compute the cost of not taking the

following cash discounts.

(a)

2/18, net 40.(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places . Omit the “%”

sign in your response.)

Cost of lost discount

%

(b)

2/18, net 65.(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Cost of lost discount

%

(c)

3/11, net 50.(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Cost of lost discount

%

(d)

4/19, net 120.(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Cost of lost discount

%

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2.

value:

1.00

points

You did NOT receive full credit for this

question in previous attempt.

Problem 8-2 Cash

discount decision [LO1]

Regis Clothiers can borrow from

its bank at 15 percent to take a cash discount. The terms of the cash

discount are 2/16, net 90.

(a)

Compute the cost of not taking the

cash discount.(Use

360 days in a year. Round your intermediate calculations and final answers to

2 decimal places. Omit the “%” sign in your response.)

Cost of

not taking a cash discount

%

(b)

Should the firm borrow the funds?

No

Yes

3.

value:

1.00

points

Problem 8-5 Effective

rate of interest [LO2]

A pawn shop will lend $158 for 12

days at a cost of $12 interest.

What is the effective rate of

interest?(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Effective rate

%

4.

value:

1.00

points

Problem 8-7 Effective

rate on discounted loan [LO2]

Mary Ott is going to borrow $6,900

for 60 days and pay $223 interest.

What is the effective rate of

interest if the loan is discounted?(Use 360 days in a year. Round your intermediate calculations and

final answers to 2 decimal places. Omit the “%” sign in your

response.)

Effective rate on

discounted loan

%

5.

value:

1.00

points

Problem 8-8 Prime vs.

LIBOR [LO2]

Dr. Ruth is going to borrow $7,200

to help write a book. The loan is for one year and the money can either be

borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 12

percent and LIBOR 2.5 percent less. Also assume there will be a $45

transaction fee with LIBOR (this amount must be added to the interest cost

with LIBOR).

Which loan has the lower effective

interest cost?(Use 360 days in a year.)

Prime

LIBOR

6.

value:

1.00

points

Problem 8-9 Foreign

borrowing [LO2]

Gulliver Travel Agencies thinks

interest rates in Europe are low. The firm borrows euros at 9 percent for one

year. During this time period the dollar falls 12 percent against the euro.

What is the effective interest

rate on the loan for one year?(Omit

the “%” sign in your response.)

Effective interest

rate

%

7.

value:

1.00

points

Problem 8-10 Dollar

cost of a loan [LO2]

Talmud Book Company borrows

$21,500 for 30 days at 15 percent interest.

What is the dollar cost of the

loan?(Use 360 days in a year. Do not round

intermediate calculations. Round your answer to 2 decimal places. Omit the

“$” sign in your response.)

Cost of loan

$

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8.

value:

2.00

points

Problem 8-11 Net

credit position [LO1]

McGriff Dog Food Company normally

takes 20 days to pay for average daily credit purchases of $9,520. Its

average daily sales are $10,530, and it collects accounts in 25 days.

(a)

What is its net credit position?(Omit the “$” sign in your response.)

Net credit position

$

(b-1)

If the firm extends its average

payment period from 20 days to 34 days (and all else remains the same), what

is the firm’s new net credit position?(Negative

amount should be indicated by a minus sign. Omit the “$” sign in

your response.)

Net credit position

$

(b-2)

Has it improved its cash flow?

No

Yes

9.

value:

1.00

points

Problem 8-13

Compensating balances [LO2]

Computer

Graphics Company needs $314,760 in funds for a project.

(a)

With a compensating balance

requirement of 14 percent, how much will the firm need to borrow?(Omit the “$” sign in your response.)

Amount to be borrowed

$

(b)

Given your answer to partaand a stated interest rate of 18 percent on thetotalamount borrowed, what is the effective rate on the

$314,760 actually being used?(Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

Effective rate

%

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10.

value:

1.00

points

Problem 8-14

Compensating balances and installment loans [LO2]

The Dade Company is borrowing

$351,000 for one year and paying $35,400 in interest to Miami National Bank.

The bank requires a 27 percent compensating balance. The principal refers to

funds the firm can effectively utilize (Amount borrowed ? Compensating

balance).

(a)

What is the effective rate of

interest?(Use 360 days in a year. Omit the

“%” sign in your response.)

Effective rate

%

(b)

What would be the effective rate

if the company were required to make 12 monthly payments to retire the loan?(Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

Effective rate

%

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11.

value:

1.00

points

Problem 8-15

Compensating balances with idle cash balances [LO2]

Randall Corporation plans to

borrow $285,000 for one year at 20 percent from the Waco State Bank. There is

a 22 percent compensating balance requirement. Randall Corporation keeps

minimum transaction balances of $14,000 in the normal course of business.

This idle cash counts toward meeting the compensating balance requirement.

What is the effective rate of

interest?(Use 360 days in a year. Round your answer to 2

decimal places. Omit the “%” sign in your response.)

Effective rate

%

12.

value:

2.00

points

Problem 8-17 Effective

rate under different terms [LO2]

Your company plans to borrow $10

million for 12 months, and your banker gives you a stated rate of 14 percent

interest.

Calculate the effective rate of interest

for the following types of loans.

(a)

Simple 14 percent interest with a

18 percent compensating balance.(Round

your answer to 2 decimal places. Omit the “%” sign in your

response.)

Effective rate

%

(b)

Discounted interest.(Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

Effective rate

%

(c)

An installment loan (12 payments).(Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

Effective rate

%

(d)

Discounted interest with a 9

percent compensating balance.(Round your answer to 2 decimal places. Omit the

“%” sign in your response.)

Effective rate

%

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13.

value:

1.00

points

Problem 8-18 Effective

rate under different terms [LO2]

If you borrow $5,300 at $400

interest for one year, what is your effective interest rate for the following

payment plans?(Round your answers to 2 decimal places. Omit

the “%” sign in your response.)

Effective

rate

(a) Annual

payment

%

(b) Semiannual

payments

%

(c) Quarterly payments

%

(d) Monthly payments

%

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14.

value:

1.00

points

Problem 8-20

Installment loan for multiyears [LO2]

Lewis and Clark Camping Supplies

Inc. is borrowing $82,000 from Western State Bank. The total interest is

$15,000. The loan will be paid by making equal monthly payments for the next

three years.

What is the effective rate of

interest on this installment loan?(Round

your answer to 2 decimal places. Omit the “%” sign in your

response.)

Effective rate

%

15.

value:

1.00

points

Problem 8-21 Cash

discount under special circumstance [LO2]

Mr. Hugh Warner is a very cautious

businessman. His supplier offers trade credit terms of 3/17, net 95. Mr.

Warner never takes the discount offered, but he pays his suppliers in 85 days

rather than the 95 days allowed so he is sure the payments are never late.

What is Mr. Warner’s cost of not

taking the cash discount?(Use 360 days in a year.Round your intermediate calculations and final

answers to 2 decimal places. Omit the “%” sign in your response.)

Cost of not taking a

cash discount

%

16.

value:

2.00

points

Problem 8-23 Bank loan

to take cash discount [LO1, 2]

The Reynolds Corporation buys from

its suppliers on terms of 2/19, net 50. Reynolds has not been utilizing the

discounts offered and has been taking 50 days to pay its bills.

Mr.

Duke, Reynolds Corporation vice president, has suggested that the company

begin to take the discounts offered. Duke proposes that the company borrow

from its bank at a stated rate of 17 percent. The bank requires a 12 percent

compensating balance on these loans. Current account balances would not be

available to meet any of this compensating balance requirement.

(a)

Calculate the cost of not taking a

cash discount.(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Cost of not taking a cash

discount

%

(b)

Calculate the Effective rate of

interest if the company borrow from the bank.(Use

360 days in a year. Round your intermediate calculations and final answers to

2 decimal places. Omit the “%” sign in your response.)

Effective rate

%

(c)

Do you agree with Duke’s proposal?

Yes

No

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17.

value:

2.00

points

Problem 8-24 Bank loan

to take cash discount [LO1, 2]

Neveready Flashlights, Inc., needs

$304,000 to take a cash discount of 2/19, net 74. A banker will loan the

money for 55 days at an interest cost of $12,400.

(a)

What is the effective rate on the

bank loan?(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Effective rate

%

(b)

How much would it cost (in

percentage terms) if the firm did not take the cash discount, but paid the

bill in 74 days instead of 19 days?(Use

360 days in a year. Round your intermediate calculations and final answers to

2 decimal places. Omit the “%” sign in your response.)

Cost of not taking a

cash discount

%

(c)

Should the firm borrow the money

to take the discount?

Yes

No

(d)

If the banker requires a 20

percent compensating balance, how much must the firm borrow to end up with

the $304,000?(Omit the “$” sign in your response.)

Amount to be borrowed

$

(e-1)

What would be the effective

interest rate in partdif the interest charge for 55 days were $9,500?(Use 360 days in a year. Round your intermediate

calculations and final answers to 2 decimal places. Omit the “%”

sign in your response.)

Effective rate

%

(e-2)

Should the firm borrow with the 20

percent compensating balance? (The firm has no funds to count against the

compensating balance requirement.)

No

Yes

18.

value:

2.00

points

Problem 8-26 Competing

terms from banks [LO2]

Summit Record Company is

negotiating with two banks for a $185,000 loan. Fidelity Bank requires a 20

percent compensating balance, discounts the loan, and wants to be paid back

in four quarterly payments. Southwest Bank requires a 10 percent compensating

balance, does not discount the loan, but wants to be paid back in 12 monthly

installments. The stated rate for both banks is 13 percent.

(a-1)

Calculate the effective interest

rate for Fidelity Bank and Southwest Bank.(Round

your answers to 2 decimal places. Omit the “%” sign in your

response.)

Effective

rate

Fidelity Bank

%

Southwest Bank

%

(a-2)

Which loan should Summit accept?

Southwest Bank

Fidelity Bank

(b)

Recompute the effective cost of

interest, assuming that Summit ordinarily maintains $37,000 at each bank in

deposits that will serve as compensating balances.(Round your answers to 2 decimal places. Omit

the “%” sign in your response.)

Effective

rate

Fidelity Bank

%

Southwest Bank

%

(c)

Does your choice of banks change

if the assumption in part b is correct?

Yes

No

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19.

value:

2.00

points

You did NOT receive full credit for this

question in previous attempt.

Problem 8-27 Accounts

receivable financing [LO1]

Charmin Paper Company sells to the

12 accounts listed below.

Account

Receivable

balance outstanding

Average

age of

the account

over the last year

A

$

63,100

27

B

219,000

43

C

77,100

14

D

26,300

58

E

56,800

43

F

243,000

34

G

36,200

25

H

315,000

67

I

44,600

33

J

98,300

50

K

235,000

16

L

69,600

35

Capital

Financial Corporation will lend 90 percent against account balances that have

averaged 30 days or less; 80 percent for account balances between 31 and 40

days; and 70 percent for account balances between 41 and 45 days. Customers

that take over 45 days to pay their bills are not considered acceptable

accounts for a loan.

The

current prime rate is 13.50 percent, and Capital charges 4.50 percent over

prime to Charmin as its annual loan rate.

(a)

Determine the maximum loan for

which Charmin Paper Company could qualify.(Omit

the “$” sign in your response.)

Maximum loan amount

$

(b)

Determine how much one month’s

interest expense would be on the loan balance determined in parta.(Round your final answer to 2 decimal places. Omit the

“$” sign in your response.)

Interest expense

$

rev: 10_26_2012

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20.

value:

2.00

points

You did NOT receive full credit for this

question in previous attempt.

Problem 8-28 Hedging

to offset risk [LO5]

The treasurer for Pittsburgh Iron

Works wishes to use financial futures to hedge her interest rate exposure.

She will sell five Treasury futures contracts at $118,000 per contract. It is

July and the contracts must be closed out in December of this year. Long-term

interest rates are currently 10.30 percent. If they increase to 12.50

percent, assume the value of the contracts will go down by 10 percent. Also

if interest rates do increase by 2.20 percent, assume the firm will have

additional interest expense on its business loans and other commitments of

$72,000. This expense, of course, will be separate from the futures contracts.

(a)

What will be the profit or loss on

the futures contract if interest rates go to 12.50 percent by December when

the contract is closed out?(Input the amount as positive value. Omit the

“$” sign in your response.)

(Click to select)

Profit

Loss

on futures contracts

$

(c-1)

After considering the hedging,

what is the net cost to the firm of the increased interest expense of

$72,000?(Omit the “$” sign in your response.)

Net cost

$

(c-2)

What percent of this $72,000 cost

did the treasurer effectively hedge away?(Round

your answer to 2 decimal places. Omit the “%” sign in your

response.)

Percentage hedged away

%

(d)

Indicate whether there would be a

profit or loss on the futures contracts if interest rates went down.

Loss

Profit

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