More than 7.7 percent, but less than 8.6 percent Less than 6.6 percent More than
ID: 2784746 • Letter: M
Question
More than 7.7 percent, but less than 8.6 percent
Less than 6.6 percent
More than 6.6 percent, but less than 7.7 percent
More than 8.6 percent
Analog Computers needs to borrow $830,000 from the Midland Bank. The bank requires a 12% compensating balance. How much money will Analog need to borrow in order to end up with $830,000 spendable cash? (Round your answer to the nearest dollar amount.)
$943,182
$1,632,158
$929,600
$1,560,400
Kantorovich Company normally takes 24 days to pay for its average daily credit purchases of $2,400. Its average daily sales are $3,400, and it collects accounts in 19 days. What is its net credit position? Note that a negative position implies receivables exceed payables.
($7,000)
$7,000
$8,000
($9,000)
Kuznets Rental Center requires $500,000 in financing over the next two years. Kuznets can borrow long-term debt at 8 percent interest per year for two years. Alternatively, Kuznets can borrow short-term debt at 6 percent interest in the first year and 9 percent interest in the second year. Assuming Kuznets pays off the interest at the end of each year, which of the following statements is true?
Kuznets will end up paying less in total interest under the long-term financing plan.
Kuznets will end up paying more in total interest under the long-term financing plan.
Kuznets will pay less in the second year under the short-term financing plan.
Kuznets will pay less in the first year under the long-term financing plan.
Kenneth's Arrows and Bows borrow $9,000 for one year at 7 percent interest. What is the effective rate of interest if the loan is discounted? (Use 360 days in a year.)Explanation / Answer
1. The effective rate will be more than 7.7% but less than 8.6% as the effective borrowing amount has been reduced but the interest in calculated on the gross borrowing
2. Since 15% will be tied with the bank,
Total Borrowing be x
x*(1 - 0.12) = 830,000
x = 830,000/0.88 = 943,182
3. Net Credit Position = Accounts Receivable - Accounts Payable
Accounts Receivable = Average Daily Credit Sales x Average Collection Period
Accounts Receivable = 3400 x 19 = 64,600
Accounts Payable = Average daily Credit Purchases x Average Payables Period
Accounts Payable = 2400 x 24 = 57,600
Net Credit Position = 64,600 - 57,600 = 7,000
4. Long Term Interest Loan = 2 x 0.08 x 500,000 = 80,000
Short Term Interest Loan = 0.06 x 500,000 + 0.09 x 500,000 = 75,000
Hence, Kuznets will end up paying more in total interest under the long-term financing plan
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