(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaste plans to borrow $100,000 for a period of 2 months, what is the annualized cost of the bank loan? ... The annualized cost of the bank loan is%. (Round to two decimal places.)
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M7 Q3
Step 1
APR is a percentage that expresses the actual annual cost of borrowing money throughout the course of a loan or the revenue from an investment. This does not account for compounding and includes any fees or additional expenditures related to the transaction.
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- (Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 16 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 6 months, what is the annualized cost of the bank loan?(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 8 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 2 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is%. (Round to two decimal places.) (...)Mr samuel approached the arnett national bank for a 15,000 loan to purchase vehicle the bank charges interest at the rate of 18 percentage per annum for the duration of the loan the bank also charges the followin fees :BANK FEES 8 percent, stamp duty 0.1 percent,legal fees 7.5 percent, application fee 1 percent a 20 percent deposit of the amount of the loan must also be made if the loan is approved .Calculate: the total amount paid of the fees charged by bank
- Paymaster Enterprises has arranged to finance its seasonal working capital needs with a short term bank loan. The loan will carry a rate of 0.072 per anum paid in advance (discounted). If Paymaster plans to borrow $760000 for a period of 7 months, what is the cost of the loan.Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10 percent. The bank requires a 15% compensating balance and the firm currently maintains $20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost to Melody of this loan.A bank offers your firm a revolving credit arrangement for up to $86 million at an interest rate of 2.15 percent per quarter. The bank also requires you to maintain a compensating balance of 2 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.50 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % b. What is your effective annual interest rate on the lending arrangement if you borrow $50 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2…
- You've worked out a line of credit arrangement that allows you to borrow up to $70 million at any time. The interest rate is .375 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. a. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1 b. Suppose you need $25 million today and you repay it in eight months. How much interest will you pay? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89. a. Effective annual rate b. Total interest paid %(Cost of short-term bank loan) On July 1, 2018, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $120,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 19 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 11 percent. Note: Interest is not paid in advance (discounted). a. If Southwest normally maintains a $22,800 to $34,800 balance in its checking account with FNB of Dallas, what is the effective cost of credit under the line-of-credit agreement when the maximum loan amount is used for a full year? b. Compute the effective cost of credit if the firm borrows the compensating balance and the maximum possible amount under the loan agreement. Again, assume the full amount of the loan is outstanding for a whole year. C a. If Southwest normally maintains a $22,800 to $34,800 balance in its…Jhar Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. Show Solutions and Explanation. A. What is the effective annual rate of interest on the line of credit? (Format: 11.11%)
- Kansas City Castings (KCC) is attempting to obtain the maximum loan possible using accounts receivable as collateral. The firm extends net-30-day credit. The amounts that are owed KCC by its 12 credit customers, the average age of each account, and the customer’s average payment period are as shown in the following table. If the bank will accept all accounts that can be collected in 45 days or less as long as the customer has a history of paying within 45 days, which accounts will be acceptable? What is the total dollar amount of accounts receivable collateral? (Note: Accounts receivable that have an average age greater than the customer’s average payment period are also excluded.) In addition to the conditions in part a, the bank recognizes that 5% of credit sales will be lost to returns and allowances. Also, the bank will lend only 80% of the acceptable collateral (after adjusting for returns and allowances). What level of funds would be made available through this lending…A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.70% per quarter. The bank also requires you to maintain a compensating balance of 4% against the unused portion of the credit line, to be deposited in a non interest- bearing account. Assume you have a short-term investment account at the bank that pays 1.05% per quarter, and assume that the bank uses compound interest on its trevolving credit loans. (Do not round intermediate calculetions. Round the final answers to 2 decimal places.) a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use It during the year? Effective annual Interest rate b. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in one year? Effective annual interest rate 1% c. What is your effective annual interest rate if you borrow $68 milion Immediately and repoy it in one…Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime plus 3% and a 2% commission charge. The prime rate currently is 8.5%. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? What is Scientific Software’s effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-day year and a prime rate that remains at 8.5% during the life of the loan.)