Question

​Hand-to-Mouth (H2M) is currently​ cash-constrained, and must make a decision about whether to delay paying one of its​ suppliers, or take out a loan. They owe the supplier

$ 10 comma 000$10,000

with terms of

22​/10

Net​ 40, so the supplier will give them a

2 %2%

discount if they pay by today​ (when the discount period​ expires). ​ Alternatively, they can pay the full

$ 10 comma 000$10,000

in one month when the invoice is due. H2M is considering three​ options:Alternative​ A: Forgo the discount on its trade credit​ agreement, wait and pay the full

$ 10 comma 000$10,000

in one month.Alternative​ B: Borrow the money needed to pay its supplier today from Bank​ A, which has offered a​ one-month loan at an APR of

12.3 %12.3%.

The bank will require a​(no-interest) compensating balance of

4.8 %4.8%

of the face value of the loan and will charge a

$ 100$100

loan origination fee. Because H2M has no​ cash, it will need to borrow the funds to cover these additional amounts as well.Alternative​ C: Borrow the money needed to pay its supplier today from Bank​ B, which has offered a​ one-month loan at an APR of

14.8 %14.8%.

The loan has a

1.3 %1.3%

loan origination​ fee, which again H2M will need to borrow to cover.

Alternative​ A:

The effective annual cost is

27.4427.44​%.

​(Round to two decimal​ places.)

Alternative​ B:

The effective annual rate is

​(Round to two decimal​ places.)

Answer 1

SEE THE SCREENSHOT. ANY DOUBTS, HAPPY TO HELP YOU. THANK YOU. THUMBS UP PLEASE.