(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14percent 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. IfPaymaster plans to borrow $90,000 for a period of 6 months, what is the annualized cost of the bank loan?The annualized cost of the bank loan is %. (Round to two decimal places.)

written solution provided.Explanation:Step 1: Step 2:Step 3: Step 4:

Answered: (Related to Checkpoint 18.2)…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter16: Working Capital Policy And Short-term Financing

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Problem 14P

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(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 16 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 6 months, what is the annualized cost of the bank loan?
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 8 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 2 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is%. (Round to two decimal places.) (...)
Paymaster Enterprises has arranged to finance its seasonal working capital needs with a short term bank loan. The loan will carry a rate of 0.072 per anum paid in advance (discounted). If Paymaster plans to borrow $760000 for a period of 7 months, what is the cost of the loan.
Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10 percent. The bank requires a 15% compensating balance and the firm currently maintains $20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost to Melody of this loan.
Cloud Venture has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed. What is the effective interest rate if the firm needs $58,000 for one year to finance a fixed asset purchase?
Racman, Inc. needs P2,000,000 to finance its extension program. Racman, Inc. is negotiating a loan with Metropolis Bank which requires the company to maintain a compensating balance of 10% of the loan principal on deposit in a current account at the bank. Pierce, Inc. currently maintains a balance of P20,000 in its current account. The current account earns interest of 2% per annum. The interest rate on the loan is 12% per annum. 1. What is the effective interest rate on the loan?
For a short-term cash requirement of $ 85,000, a 12-month term loan with equal installments will be drawn from the bank. If the monthly interest rate is 1.75, prepare the loan payment table (loan amortization table) by finding the monthly payment amount.
Union Trust Commercial Bank has issued a one-year $100 million loan commitment to a customer for an up-front fee of 25 basis points. In the analysis to compute its loan rate for this customer, the bank has determined that its base lending rate will be 10% and its margin to compensate the bank for default risk for this particular customer is 2%. The back-end fee for non-usage of the commitment is 10 basis points. The bank requires a 5 percent compensating balance in demand deposits on the entire amount of the commitment. The reserve requirement ratio on demand deposits at the central bank is 10 percent. What is the loan rate offered to this customer? What is effective return on the loan to the bank if 50 percent of the loan is taken down? In computing this return, do not take into consideration future values of fee or interest income received.
For a short-term cash requirement of 85,000 TL, a 12-month maturity loan with equal installments will be withdrawn from the bank. If the monthly interest rate is 1.75, prepare the loan payment table (loan amortization table) by finding the monthly payment amount.
National Co. needs to borrow P300,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with a 10% interest rate subject to a 20% of loan compensating balance. Currently, National Co. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will National Co. need to borrow?
You've worked out a line of credit arrangement that allows you to borrow up to $70 million at any time. The interest rate is .375 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. a. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1 b. Suppose you need $25 million today and you repay it in eight months. How much interest will you pay? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89. a. Effective annual rate b. Total interest paid %
Van Buren Resources Inc. is considering borrowing $100,000 for 182 days from its bank. Van Buren will pay $6,000 of interest at maturity, and it will repay the $100,000 of principal at maturity. a. Calculate the loan’s annual financing cost. b. Calculate the loan’s annual percentage rate. c. What is the reason for the difference in your answers to Parts a and b?

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