Chat with us, powered by LiveChat bus 320 connect homework 4 | Gen Paper
+1(978)310-4246 credencewriters@gmail.com
  

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

%

check my workeBook
LinkView Hint #1referencesprevious attempt

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

$

check my workeBook
Link

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

%

check my workeBook
LinkView H

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

%

check my workeBook
LinkView Hint

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

%

check my workeBook
Linkreferen

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

%

check my workeBook
Linkreferences

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

check my work

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

check my work

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
check my workeBook

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

Bottom of Form

error: Content is protected !!