Question

Flashlights, Inc needs $500,000 to take a cash discount of 2/10, net 80 A 8 banker wll loan the money for 70 days at an interest cost of $7.500 a What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate celculetions. Round the final answer to 2 decimal places) b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 80 days instead of 10 days? (Use 365 days in a year Do not round intermediate calculations. Round the final answer to 2 decimal places) c.Should the firm borrow the money to take the discount? Yes i No rcent compensating borrow to end up wiath the s500000? (Use 365 days in a year. Do not round balance, how much must the fiem 8 O No d. If the banker requires a 13 percent compensating balance, how much must the fim borrow to end up with the $500,000? (Use 365 days in a year. Do not round ermediate calculations. Round the e-1. What would be the effective interest rate in part d if the interest charge for 70 days were $10.500? (Use 365 days in a year. Do not round intermediate caiculations Round the final answer to 2 decimal places.) Effective interest rate e-2 Should the firm borrow with the 18 percent compensating balance? (The firm has no funds to count against the compensating balance requirement) No

Answer 1

the detailed answer for the above question is explained below

Calrutahon Annual ate Dabsina YeaY Pstnciple as loan is outstandin $7500 x 365 $500,000 X ㅋ。 Effective Annual Yak, -7-92% Discount paRCentoge Days ina Year FtnalDuc Dcoant date period 365 8o-Mo 365 Cost of not taking cas disountar | 10,64 %

Yes Te fsm Should bsroa mona to take -the- discount Becoupe Cest of not takine Coh discount is hisht thom effeckve Anual ate. Amount needed Amount bc borroed 1-Compensahbalance 500,000 mount tobe berrowed$574, 712.6 Calculahon of effeche nterest yate: Days inayear outstandin

$Io, 5oo $544,712.64-412.5 1o,500 365 Ao $500,000 -10.95% 10.95% .. . |Effective gntoret oak 9- NoThe m Should not burTovo with the compen sahirg balonce than, the Cost of not tring CHA discount.ao.64%) loy is, 10.19%-10.64% 0.31%