Carmen’s Beauty Salon has estimated monthly financing requirements for the next
ID: 2333538 • Letter: C
Question
Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows: January $ 8,700 April $ 8,700 February 2,700 May 9,700 March 3,700 June 4,700 Short-term financing will be utilized for the next six months. Projected annual interest rates are: January 6 % April 13 % February 7 May 12 March 10 June 12 What long-term interest rate would represent a break-even point between using short-term financing and long-term financing? (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest
Explanation / Answer
Solution:
Month
Annual rate
Monthly rate
Amount financed
Monthly interest
January
6
0.50
8700
43.50
February
7
0.58
2700
15.75
March
10
0.83
3700
30.83
April
13
1.08
8700
94.25
Mmay
12
1.00
9700
97.00
June
12
1.00
4700
47.00
38,200.00
328.33
Break-even annual rate = 12* (Interest / Amount financed)
=12 * (328.33/38,200)
= 0.10314 or 10.31%
Month
Annual rate
Monthly rate
Amount financed
Monthly interest
January
6
0.50
8700
43.50
February
7
0.58
2700
15.75
March
10
0.83
3700
30.83
April
13
1.08
8700
94.25
Mmay
12
1.00
9700
97.00
June
12
1.00
4700
47.00
38,200.00
328.33
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