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BUSI-320 Corporate Finance-2013 Fall-B assignment- 4

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Question;1.;Problem;8-1 Cash discount [LO1];Compute the cost of not taking the;following cash discounts.;(a);3/14, net 55. (Use 360 days in a year. Round your intermediate;calculations and final answers to 2 decimal places. Omit the "%;sign in your response.);Cost of lost discount;%;(b);2/18, net 55. (Use 360 days in a year. Round your intermediate;calculations and final answers to 2 decimal places. Omit the "%;sign in your response.);Cost of lost discount;%;(c);3/19, net 55. (Use 360 days in a year. Round your intermediate;calculations and final answers to 2 decimal places. Omit the "%;sign in your response.);Cost of lost discount;%;(d);4/15, net 150. (Use 360 days in a year. Round your intermediate;calculations and final answers to 2 decimal places. Omit the "%;sign in your response.);Cost of lost discount;%;2.Problem 8-2 Cash discount decision [LO1];Regis Clothiers can borrow from;its bank at 17 percent to take a cash discount. The terms of the cash;discount are 3/19, net 45.;(a);Compute the cost of not taking the;cash discount. (Use 360 days in a year. Round;your intermediate calculations and final answers to 2 decimal places. Omit;the "%" sign in your response.);Cost of;not taking a cash discount;(b);Should the firm borrow the funds?;3.Problem 8-5 Effective rate of interest [LO2];A pawn shop will lend $111 for 11;days at a cost of $13 interest.;What is the effective rate of;interest? (Use 360 days in a year. Round your;intermediate calculations and final answers to 2 decimal places. Omit the;%" sign in your response.);Effective rate;4.Problem 8-7 Effective rate on discounted loan;[LO2];Mary Ott is going to borrow $9,800;for 75 days and pay $171 interest.;What is the effective rate of;interest if the loan is discounted? (Use 360;days in a year. Round your intermediate calculations and final answers to 2;decimal places. Omit the "%" sign in your response.);Effective rate on;discounted loan;5.Problem 8-8 Prime vs. LIBOR [LO2];Dr. Ruth is going to borrow $1,800;to help write a book. The loan is for one year and the money can either be;borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 8;percent and LIBOR 2.5 percent less. Also assume there will be a $55;transaction fee with LIBOR (this amount must be added to the interest cost;with LIBOR).;Which loan has the lower effective;interest cost? (Use 360 days in a year.);6.Problem 8-9 Foreign borrowing [LO2];Gulliver Travel Agencies thinks;interest rates in Europe are low. The firm borrows euros at 9 percent for one;year. During this time period the dollar falls 16 percent against the euro.;What is the effective interest;rate on the loan for one year? (Omit the;%" sign in your response.);Effective interest;rate;%;7.Problem 8-10 Dollar cost of a loan [LO2];Talmud Book Company borrows $19,900;for 45 days at 10 percent interest.;What is the dollar cost of the;loan? (Use 360 days in a year. Do not round;intermediate calculations. Round your answer to 2 decimal places. Omit the;$" sign in your response.);Cost of loan;$;8.Problem 8-11 Net credit position [LO1];McGriff Dog Food Company normally;takes 23 days to pay for average daily credit purchases of $9,380. Its;average daily sales are $10,070, and it collects accounts in 30 days.;(a);What is its net credit;position?(Omit the "$" sign in;your response.);Net credit position;$;(b-1);If the firm extends its average;payment period from 23 days to 35 days (and all else remains the same), what;is the firm's new net credit position?(Negative;amount should be indicated by a minus sign. Omit the "$" sign in;your response.);Net credit position;$;(b-2);Has it improved its cash flow?;9.Problem 8-13 Compensating balances [LO2];Computer;Graphics Company needs $288,960 in funds for a project.;(a);With a compensating balance;requirement of 16 percent, how much will the firm need to borrow?(Omit the "$" sign in your response.);Amount to be borrowed;$;(b);Given your answer to part a and;a stated interest rate of 10 percent on the total amount borrowed;what is the effective rate on the $288,960 actually being used?(Round your answer to 2 decimal places. Omit the;%" sign in your response.);Effective rate;10.Problem 8-14 Compensating balances and;installment loans [LO2];The Dade Company is borrowing;$395,000 for one year and paying $32,200 in interest to Miami National Bank.;The bank requires a 22 percent compensating balance. The principal refers to;funds the firm can effectively utilize (Amount borrowed? Compensating;balance).;(a);What is the effective rate of;interest?(Use 360 days in a year. Omit;the "%" sign in your response.);Effective rate;%;(b);What would be the effective rate;if the company were required to make 12 monthly payments to retire the;loan?(Round your answer to 2 decimal places.;Omit the "%" sign in your response.);Effective rate;%

 

Paper#45451 | Written in 18-Jul-2015

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