Harper Engine Company needs $684,000 to take a cash discount of 2.50/10, net 80.

Question

Harper Engine Company needs $684,000 to take a cash discount of 2.50/10, net 80. A banker will loan the money for 70 days at an interest cost of $15,400. (a) What is the effective rate on the bank loan? (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 % (b) How much would it cost (in percentage terms) if Harper did not take the cash discount, but paid the bill in 80 days instead of 10 days? (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 % (c) Should Harper borrow the money to take the discount? Yes No (d) If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $684,000? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.) Amount to be borrowed $ (e-1) What would be the effective interest rate in part d if the interest charge for 70 days were $9,900? (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 % (e-2) Should Harper borrow with the 10 percent compensating balance? (There are no funds to count against the compensating balance requirement.) Yes No

Explanation / Answer

Yes

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