"4. Your bank will lend you $3,000 for 50 days at a cost of $45 interest. What is your effectiverate of interest?8-4. Solution:Interest Days in the year (360) Effective rate = × Principal Days loan is outstanding $45 360 = ×$3,000 50 =1.5%× 7.2=10.80% 5. I. M. Boring borrows $5,000 for one year at 13 percent interest. What is the effective rateof interest if the loan is discounted?8-5. Solution:I.M. BoringInterest Days per year (360) Effective rate on a = × discounted loan Princ. - Int. Days loan is outstanding $650 360 $650 = ×= ×1 $5,000 - $650 360 $4,350 = 14.94% S8-6 6. Ida Kline borrows $8,000 for 90 days and pays $180 interest. What is the effective rate ofinterest if the loan is discounted?8-6. Solution:Ida KlineInterest Days per year (360) Effective rate on a = × discounted loan Princ. - Int. Days loan is outstanding $180 360 $180 = ×= × 4$8,000 - $180 90 $7,820 = 2.30%×= 4 9.20% 7. Mo and Chris’s Sporting Goods, Inc., borrows $14,500 for 20 days at 12 percent interest.What is the dollar cost of the loan? Use the formula:Dollar cost Amount Interest Days loan is outstanding= × ×of loan borrowed rate Days in the year (360) 8-7. Solution:Mo and Chris’ Sporting GoodsDollar cost of loan =Days loan is outstanding Amount Borrowed×× Interest rateDays in the year (360) 20 = $14,500×× 12% 360 1=$14,500×× 12%18 =$14,500×= .67% $97.15 S8-7 8. Sampson Orange Juice Company normally takes 20 days to pay for its average daily creditpurchases of $6,000. Its average daily sales are $7,000, and it collects accounts in 28 days.a. What is its net credit position? That is, compute its accounts receivable and accountspayable and subtract the latter from the former. Accounts receivable = Average daily credit sales × Average collection period Accounts payable = Average daily credit purchases × Average payment periodb. If the firm extends its average payment period from 20 days to 35 days (and all elseremains the same), what is the firm’s new net credit position? Has it improved its cash flow?8-8. Solution:Sampson Orange Juice Companya. Net credit position = accounts receivable – accounts payableAverage Daily Average Accounts rec.= × Credit Purchases Payment Period $196,000 = $7,000 × 28 Average Daily Average Accounts payable = × Credit Purchases Payment Period $120,000 = $6,000 × 20 Net Credit Position = $196,000 – $120,000 = $76,000b. Accounts Receivable will remain at $196,000Accounts Payable = $6,000 × 35 =210,000Net Credit Position ($14,000)The firm has improved its cash flow position. Instead ofextending $76,000 more in credit (funds) than it is receiving,it has reversed the position and is the net recipient of $14,000 in credit.S8-8 9. Maxim Air Filters, Inc., plans to borrow $300,000 for one year. Northeast National Bankwill lend the money at 10 percent interest and requires a compensating balance of 20 percent. What is the effective rate of interest?8-9. Solution:Maxim Air Filters, Inc.Effective rate of interest with 20% compensating balance =Interest rate 10% 10% = = =12.5%1-- C 1 .2 .8 ( ) ( ) orInterest Days of the year (360) × Principal - Compensating balance Days loan is outstanding $30,000 $30,000 = ×1= ×1=12.5% $300,000 - $60,000 $240,000 S8-9 10. Digital Access, Inc., needs $400,000 in funds for a project.a. With a compensating balance requirement of 20 percent, how much will the firm needto borrow?b. Given your answer to part a and a stated interest rate of 9 percent on the total amountborrowed, what is the effective rate on the $400,000 actually being used?8-10. Solution:Digital Access, Inc.Amount needed a. Amount to be borrowed = 1 - C ( ) $400,000 $400,000= =1 -.20 .80 ( ) =$500,000 $500,000 total amount borrowed b.9% Interest rate $45,000 Interest $45,000 =11.5%$400,000 S8-10 "