Finance assignment 7 | Business & Finance homework help

Finance Assignment 7


11. Bank A offers the following terms for a $10 million loan:

* interest rate: 8 percent for one year on funds borrowed

* fees: 0.5 percent of the unused balance for the unused term of the loan Bank B offers the following      terms for a $10 million loan:

* interest rate: 6.6 percent for one year on funds borrowed

* fees: 2 percent origination fee


a. Which terms are better if the firm intends to borrow the $10 million for the entire year?

b.   If the firm plans to use the funds for only three months, which terms are better?


2. Tinker, Inc. finances its seasonal working capital need with short-term bank loans. Management plans to borrow $65,000 for a year. The bank has offered the company a 3.5 percent discounted loan with a 1.5 percent origination fee. What are the interest payment and the origination fee required by the loan? What is the rate of interest charged by the bank?


5. An individual wishes to borrow $10,000 for a year and is offered the following alternatives:

a. a 10 percent loan discounted in advance

b. an 11 percent straight loan (i.e., interest paid at maturity). Which loan is more expensive?


6. Which of the following terms of trade credit is the more expensive?

a. A 3 percent cash discount if paid on the 15th day with bill due on the 45th day (3/15, net 45)

b. A 2 percent cash discount if paid on the 10th day with the bill due on the 30th day (2/10, net 30)


9.   If $1 million face amount of commercial paper (270-day paper) is sold for $982,500, what is the simple rate of interest being paid? What is the compound annual rate?


Chapter 25

3. a. What is the EOQ for a firm that sells 5,000 units when the cost of placing an order is $5 and the carrying costs are $3.50 per unit?

b. How long will the EOQ last? How many orders are placed annually?

c. As a result of lower interest rates, the financial manager determines the carrying costs are now $1.80 per unit. What are the new EOQ and annual number of objects?


4. Given the following information:

Annual sales in units    30,000

Cost of placing an order   $60.00

Per-unit carrying costs   $ 1.50

Existing units of safety stock    300


a. What is the EOQ?

b. What is the average inventory based on the EOQ and the existing safety stock?

c. What is the maximum level of inventory?

d. How many orders are placed each year?



14. What is the effective, compound rate of interest you earn if you enter into a repurchase agreement in which you buy a Treasury bill for $76,789 and agree to sell it after a month (30 days) for $77,345? What is the compound rate of interest you pay if you sell a Treasury bill for $76,789 and repurchase it after 30 days? 

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