Alternative is the cheapest source of financing

Assignment Help Financial Management
Reference no: EM131322645

Task

Your startup needs a $10,000 loan for the next 20 days. It is trying to decide which of three alternatives to use:

Alternative A: Forgo the discount on its trade credit agreement that offers terms of 2.0 /10, net 20.

Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 20 days at an APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means your start-up must borrow even more than the $10,000.

Alternative C: Borrow the money from Bank B, which has offered to lend the firm $10,000 for 20 days at an APR of 14%. The loan has a 1% loan origination fee.

For alternative A, the annual rate is %. (round to two decimals)

For alternative B, the annual rate is %. (round to two decimals)

For alternative C, the annual rate is %. (round to two decimals)

Which alternative is the cheapest source of financing for Hand-to-Mouth?

It is alternative . (fill in "A", "B", or "C" without quotes)

Reference no: EM131322645

Questions Cloud

How price effect contributes to the fact that for a monopoly : What is the value at point (b)and why is it important? Explain your understanding of how price effect contributes to the fact that, for a monopoly, marginal revenue is always less than the price.
How would you detect and correct a restricted range : What is a restricted range, and what effect does it have on correlation coefficients? How would you detect and correct a restricted range?
Which mental disorder character symptoms best represent : Based on the DSM-5, which mental disorder do you believe the character's symptoms best represent? Are there any indications that suggest the character may have a different mental disorder other than the one you have listed in C
What impact does reliability have on correlation : Do outliers increase or decrease the magnitude of correlation coefficients?- What impact does reliability have on correlation?
Alternative is the cheapest source of financing : Your startup needs a $10,000 loan for the next 20 days. It is trying to decide which of three alternatives to use: Forgo the discount on its trade credit agreement that offers terms of 2.0 /10, net 20. Borrow the money from Bank B, which has offered ..
When is the spearman rank order correlation used : How can partial correlation help researchers explore possible causal relationships among correlated variables?- When is the Spearman rank-order correlation used?
A moderate correlation between peoples scores : If you were going to conduct the study again, what could you do to provide a more powerful test of your hypothesis?
Evaluate strengths and weaknesses of this ethical theory : Explain the important differences between contemporary ethical relativism and the Christian worldview. Define, discuss, and defend (or deny) Natural Law, as well as evaluate strengths and weaknesses of this ethical theory
Derivation of a quantitative criterion on quasi-neutrality : Show that the approximate diffusion equations derived for a constant electric field, (750.3A) and (750.4A), are also valid if E is not spatially constant but the region is quasi-neutral. This enables a derivation of a quantitative criterion on qua..

Reviews

Write a Review

Financial Management Questions & Answers

  Find your net profit-loss from your hedged portfolio

Consider a stock paying continuous dividends of 1%. Assume r = 0.06, σ = 0.32 and today’s stock price of S0 = 33. You sell 100 Calls with strike K = 35 and expiration in 68 days (assume 365 days in a year). You also construct a delta-hedge to manage ..

  What is the cost of equity after recapitalization

Bruce & Co. expects its EBIT to be $75,000 every year forever. The company can borrow at 12 percent. The company currently has no debt, its cost of equity is 15 percent, and the tax rate is 35 percent. What is the cost of equity after recapitalizatio..

  Considering sale of new sound board used in recording studio

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $25,600, and the company expects to sell 1,410 per year. The company currently sells 1,910 units of its existing model per year..

  Firm re-capitalized by borrowing

An all equity firm worth $100 today will be worth either $150 or $80 in one year in the good and bad states respectively. What would be the returns to equity in each state of the world be if the firm re-capitalized by borrowing $60 (and paying this a..

  Target debt- equity ratio-what is the cost of equity

Blue Bull, Inc., has a target debt- equity ratio of .55. Its WACC is 8.1 percent, and the tax rate is 35 percent. a. If the company’s cost of equity is 11 percent, what is its pretax cost of debt? b. If the aftertax cost of debt is 3.8 percent, what ..

  Defines the terms of sale

Which one of the following defines the terms of sale?

  Describe the liability of the partnership-fresher flowers

Fran, Joe, and Mike formed a general partnership to operate a flower shop called Fresher Flowers. One of Fran’s jobs is to make deliveries using the partnership truck. In one such delivery, Fran negligently ran a stop sign, striking a car driven by P..

  Investment banker enters into best efforts arrangement

An investment banker enters into a best efforts arrangement to try and sell 10 million shares of stock at $12 per share for Pierre Imports. The investment banker incurs expenses of $2,000,000 in floating the issue while the company incurs expenses of..

  Calculate the gross price paid by consumers

Calculate the gross price paid by consumers after a per-ticket tax of $4. - Calculate the after-tax price received by ticket sellers.

  Response to widespread outcry about pricing of generic drugs

In mid-September, 2015 S&P 500 lowered the credit rating of We$ellDrugs, Inc (W$D) from AAA to AA in response to widespread outcry about the pricing of generic drugs that were recently purchased by the company. How would the yield to maturity of the ..

  What is the value of the tax shield

An all-equity firm is subject to a 30% tax rate. Its total market value is initially $3,500,000, and there and 175,000 shares outstanding. The firm announces a program to issue $1 million worth of bonds at 10% interest and to use the proceeds to buy ..

  Assume that the yield to maturity remains constant

A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of t..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd