Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan
Question:
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 8 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $1 million for a period of 6 months, what is the cost of the bank loan?
Step by Step Answer:
ESTIMATING THE COST OF BANK CREDIT ...View the full answer
Foundations Of Finance
ISBN: 9780134083285
9th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
Students also viewed these Finance questions
-
Paymaster Enterprises has arranged to finance its seasonal working- capital needs with a short- term bank loan. The loan will carry a rate of 12 percent per an-num with interest paid in advance...
-
A bond with a coupon rate of 8 percent sells at a yield to maturity of 9 percent. If the bond matures in 17 years, what is the Macaulay duration of the bond? What is the modified duration?
-
A $1,000 bond has a coupon rate of 8 percent and matures after ten years. a) What is the current price of the bond if the comparable rate of interest is 8 percent? b) What is the current price of the...
-
A 4-ft-high, 3-ft-diameter cylindrical water tank whose top is open to the atmosphere is initially filled with water. Now the discharge plug near the bottom of the tank is pulled out, and a water jet...
-
Can you do capital budgeting for a foreign project using a domestic currency discount rate? Explain your answer.
-
Comment on the impact on U.S. GAAP if the short-term convergence and the major topics are completed.
-
Identify the functions pertaining to the executing and the recording of purchases and cash disbursements transactions and custody of related assets.
-
Bobek Inc. has recently reported steadily increasing income. The company reported income of $20,000 in 2009, $25,000 in 2010, and $30,000 in 2011. A number of market analysts have recommended that...
-
Need help with SQL homework, questions start under the problems section. This document is intended to relate the concepts we discuss in class to the Oracle SQL Language Reference or to the Oracle...
-
Ocado represents the changes wrought on retail by the advent of new technology and the rise of online shopping. Ocado floated in 2010, the year in which it delivered 100,000 orders in a week for the...
-
The Michelin Warehousing and Transportation Company (WTC) needs $300,000 to finance an anticipated expansion in receivables due to increased sales. WTC's credit terms are net 60, and its average...
-
The Marlow Sales and Distribution Co. needs $1.5 million for the 3-month period ending September 30, 2015. The firm has explored two possible sources of credit. a. Marlow has arranged with its bank...
-
Pastureland Dairy makes cheese, which it sells at local supermarkets. The fixed monthly cost of production is $4,000, and the variable cost per pound of cheese is $0.21. The cheese sells for $0.75...
-
The ORDER BY Amount ASC clause to the SELECT statement used in SQL suggests that a. the amount of the query result will be listed in ascending order. b. the amount of the query result will be listed...
-
Covered interest rate arbitrage with transaction costs (advanced). Assume that U.S.-based potential arbitrageurs do not hold cash, but hold dollar-denominated securities. Covered investment in...
-
SAP modules available for implementation include a. Payroll, Personnel Time Management, and Enterprise Management. b. Payroll, Financial Accounting, and Enterprise Management. c. Financial...
-
Referring to problem 3, Prometheus Partners is considering currency options as alternative instruments to speculate on the possible demise of the euro. March 2013 European put and call options are...
-
Cloud computing a. takes energy from the sun and clouds. b. is Internet-based computing, where shared resources, software, and information are provided to firms on demand. c. requires a firm to make...
-
A marketing company wants to determine if the combined years of experience of its staff who worked on a proposal have an impact on the chance of winning a contract. What is the equation of an...
-
Experiment: Tossing four coins Event: Getting three heads Identify the sample space of the probability experiment and determine the number of outcomes in the event. Draw a tree diagram when...
-
Based on the information for the T. P. Jarmon Company for the year ended December 31, 2015 (see page 96): a. How much is the firm's net working capital, and what is the debt ratio? b. Complete a...
-
Prepare an income statement and a balance sheet from the following scrambled list of items. What is the firm's net working capital and debt ratio? Sales...
-
What are the limitations of financial statements?
-
Research your industry and find common ratios significant to your industry. What are they and what are they telling you about your industry? Be specific as to the ratios relevant to your industry and...
-
Djibril is the owner of a successful BMW dealership garage. One of his customers, Maxime, had his car repaired at the garage, but did not pay for the agreed repairs. He asks to take his vehicle back...
-
BSL uses the sign convention that Tij has a positive value if i) the force by the surroundings acting on the surface with outward normal - points in the + direction, or ii) the force by the...
Study smarter with the SolutionInn App