Effective Interest Rate Assignment

Harper Engine Company needs $623,000 to take a cash discount of 2.50/10, net 85. A banker will loan the money for 75 days at an interest cost of $18,300.

a. What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer is complete but not entirely correct. Effective rate of interest 14.91 %

b. How much would it cost (in percentage terms) if Harper did not take the cash discount but paid the bill in 85 days instead of 10 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer is complete and correct. Cost of not taking a cash discount 12.31 %

c. Should Harper borrow the money to take the discount? No Yes

d. If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $623,000? (Round your answer to 2 decimal places.)

Answer is complete and correct. Amount to be borrowed $ 692,222.22

e-1. What would be the effective interest rate in part d if the interest charge for 75 days were $16,300? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

> Answer is complete but not entirely correct. Effective rate of interest 11.82 %. Get Finance homework help today

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