Carmen’s Beauty Salon
has estimated monthly financing requirements for the next six
months as follows:
January | $ | 10,400 | April | $ | 10,400 |
February | 4,400 | May | 11,400 | ||
March | 5,400 | June | 6,400 | ||
Short-term financing will be utilized for the next six months.
Projected annual interest rates are:
January | 8 | % | April | 15 | % |
February | 9 | May | 12 | ||
March | 12 | June | 12 | ||
What long-term interest rate would represent a break-even point
between using short-term financing and long-term financing?
(Round your monthly interest rate to 2 decimal places when
expressed as a percent. Round your interest payments to the nearest
whole cent. Input your answer as a percent rounded to 2 decimal
places.)
Interest Rate?
Calculation of Short-Term Interest | ||||
Month | Amount | Interest % | Monthly Interest % | Interest |
January | $10,400 | 8% | 0.67% | $69 |
February | $4,400 | 9% | 0.75% | $33 |
March | $5,400 | 12% | 1.00% | $54 |
April | $10,400 | 15% | 1.25% | $130 |
May | $11,400 | 12% | 1.00% | $114 |
June | $6,400 | 12% | 1.00% | $64 |
Total | $48,400 | $464 | ||
Long-Term Interest Rate for Break-even | ||||
=Total Short-Term Interest/Total Loan Amount | ||||
=464/48400 | ||||
0.96% | p.m. | |||
11.51% | Annual Long Term Interest Rate |
Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows: ...
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