Reference no: EM131354237
Hand-to-Mouth is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $12,000, but the supplier will give them a 2.4% discount if they pay by today (when the discount period expires). That is, they can either pay $ $11,712 today, or $12,000 in one month when the net invoice is due. Because Hand-to-Mouth does not have the $11,712 in cash right now, it is considering three options:
Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $ 12,000 in one month.
Alternative B: Borrow the money from Bank A, which has offered to lend the firm $11,712 for one month at an APR? (compounded monthly) of 12.4%. The bank will require a (no-interest) compensating balance of 4.7% of the face value of the loan and will charge a $ $90 loan origination? fee, which means? Hand-to-Mouth must borrow even more than the $ $11,712.
Alternative C: Borrow the money from Bank B, which has offered to lend the firm $11,712 for one month at an APR of 14.8%? (compounded monthly). The loan has a 1.3% loan origination fee.
Alternative A: The effective annual rate is _____ ?%. (Round to two decimal?places.)
Alternative B: The effective annual rate is _____ %. (Round to two decimal places.)
Alternative C: The effective annual rate is _____ %. (Round to two decimal places.).
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: Hand-to-Mouth is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $12,000, but the supplier will give them a 2.4% discount if they pay by today (when ..
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