We appreciate your visit to Harper Engine Company needs 687 000 to take a cash discount of 1 50 15 net 70 A banker will loan the money for 55. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
Based on the calculations, Harper should not borrow with the 10% compensating balance requirement since the effective interest rate (10.79%) is higher than the effective rate on the bank loan (72.71%).
a. To calculate the effective rate on the bank loan, we need to determine the interest rate per period.
Interest cost = $20,800
Loan period = 55 days
Loan amount = $687,000
Effective rate = (Interest cost / Loan amount) * (360 / Loan period)
Effective rate = ($20,800 / $687,000) * (360 / 55)
Effective rate ≈ 0.1110 * 6.5455
Effective rate ≈ 0.7271
The effective rate on the bank loan is approximately 72.71%.
b. If Harper did not take the cash discount and paid the bill in 70 days instead of 15 days, we need to calculate the cost as a percentage.
Cost of not taking the discount = (Discount % / (100% - Discount %)) * (360 / (Discount period - Net period))
Discount % = 1.50%
Discount period = 15 days
Net period = 70 days
Cost of not taking the discount = (1.50% / (100% - 1.50%)) * (360 / (15 - 70))
Cost of not taking the discount ≈ 1.51%
The cost, in percentage terms, of not taking the cash discount and paying the bill in 70 days instead of 15 days is approximately 1.51%.
c. Based on the calculations, Yes, Harper should borrow the money to take the discount.
since the effective rate on the bank loan (72.71%) is lower than the cost of not taking the discount (1.51%).
d. Harper must borrow approximately $763,333.33 to end up with $687,000 after the 10% compensating balance requirement.
To determine the loan amount required to end up with $687,000 after the 10% compensating balance requirement:
Loan amount = Desired amount / (1 - Compensating balance %)
Desired amount = $687,000
Compensating balance % = 10%
Loan amount = $687,000 / (1 - 0.10)
Loan amount ≈ $763,333.33
e-1. To calculate the effective interest rate in part d with an interest charge of $12,600:
Effective rate = (Interest cost / Loan amount) * (360 / Loan period)
Interest cost = $12,600
Loan period = 55 days
Loan amount = $763,333.33
Effective rate = ($12,600 / $763,333.33) * (360 / 55)
Effective rate ≈ 0.0165 * 6.5455
Effective rate ≈ 0.1079
The effective interest rate in part d, with an interest charge of $12,600, is approximately 10.79%.
e-2. Based on the calculations, Harper should not borrow with the 10% compensating balance requirement .
since the effective interest rate (10.79%) is higher than the effective rate on the bank loan (72.71%).
Read more about effective rate, visit:
brainly.com/question/30602158
#SPJ4
Thanks for taking the time to read Harper Engine Company needs 687 000 to take a cash discount of 1 50 15 net 70 A banker will loan the money for 55. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!
- Why do Businesses Exist Why does Starbucks Exist What Service does Starbucks Provide Really what is their product.
- The pattern of numbers below is an arithmetic sequence tex 14 24 34 44 54 ldots tex Which statement describes the recursive function used to..
- Morgan felt the need to streamline Edison Electric What changes did Morgan make.
Rewritten by : Barada
