You are the owner of four Taco Bell restaurant locations. You have a business loan with Citizens Bank taken out 60 days ago that is due in 90 days. The amount of the loan is $50,000, and the rate is 9.5% using ordinary interest.

You currently have some excess cash. You have the choice of sending Citizens $25,000 now as a partial payment on your loan or purchasing an additional $25,000 of serving supplies such as food containers, cups, and plastic dinnerware for your inventory at a special discount price that is "10% off" your normal cost of these items.

How much interest (in $) will you save on this loan if you make the partial payment and don't purchase the additional serving supplies? (Round your answer to two decimal places.)

How much (in $) will you save by purchasing the discounted serving supplies and not making the partial payment? (Hint: Find the difference of the savings on the supplies and the potential savings on the loan found in part (a). Round your answer to two decimal places.)

What other factors should you consider before making this decision?

Answer rating: 100% (QA)

To calculate the interest savings we first need to determine the interest that would accrue on the loan if no partial payment is made Since the loan i... View the full answer