Yonge Corporation must arrange financing for its working capital requirements fo

Question

Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable, loan basis at an 11.5% nominal rate; (c) borrow on an installment loan basis at a 6% add-on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost of the least expensive type of credit?

Explanation / Answer

SOLUTION:

1. Given that the simple interest rate as 12%

2. For 3 months it will be,

= (1 + (0.115 / 4)4

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.