Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 15, Problem 11SP
a)
Summary Introduction
To determine: Effective cost of credit under line of credit agreement if maximum loan is used for a full year.
b)
Summary Introduction
To determine: Effective cost of credit if firm borrows the compensating balance and maximum possible amount under the loan agreement.
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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?
(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…
(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.)
(...)
Chapter 15 Solutions
Foundations Of Finance
Ch. 15 - Dell Computer Corporation (DELL) has long been...Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Explain what is meant by the statement The use of...Ch. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - How can the formula interest = principle rate ...Ch. 15 - How can we accommodate the effects of compounding...Ch. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 1SPCh. 15 - Prob. 2SPCh. 15 - Prob. 3SPCh. 15 - (Estimating the cost of bank credit) Paymaster...Ch. 15 - (Cost of short-term financing) The R. Morin...Ch. 15 - (Cost of secured short-term credit) The Marlow...Ch. 15 - (Cost of short-term financing) You plan to borrow...Ch. 15 - Prob. 8SPCh. 15 - (Cost of trade credit) Calculate the effective...Ch. 15 - (Annual percentage yield) Compute the cost of the...Ch. 15 - Prob. 11SPCh. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of factoring) MDM, Inc. is considering...Ch. 15 - (Cost of factoring) A factor has agreed to lend...Ch. 15 - Prob. 16SPCh. 15 - Prob. 17SP
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