Hand-to-mouth is currently cash-constrained

Assignment Help Financial Management

Reference no: EM131862536

Hand-to-Mouth (H2M) is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or take out a loan. They owe the supplier $12,500 with terms of 2.2?/10Net 40, so the supplier will give them a 2.2% discount if they pay by today (when the discount period? expires). Alternatively, they can pay the full $12,500 in one month when the invoice is due. H2M is considering three options:

Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $12,500in one month.

Alternative B: Borrow the money needed to pay its supplier today from Bank A, which has offered a one-month loan at an APR of 11.6%. The bank will require a (no-interest) compensating balance of 4.7% of the face value of the loan and will charge a $95 loan origination fee. Because H2M has no cash, it will need to borrow the funds to cover these additional amounts as well.

Alternative C: Borrow the money needed to pay its supplier today from Bank B, which has offered a one-month loan at an APR of 15.4%. The loan has a 0.5% loan origination fee, which again H2M will need to borrow to cover.

Alternative A: The effective annual cost is _________?%. (Round to two decimal places.)

Alternative B: The effective annual rate is _______________% (Round to two decimal places)

Alternate C: The effective annual rate ______% (Round to two decimal places)

(Select the best choice below.)

A. Alternative C, with the lowest effective annual rate, is the best option for Hand-to-Mouth.

B. Alternative A, with the lowest effective annual rate, is the best option for Hand-to-Mouth.

C. Alternative B, with the lowest effective annual rate, is the best option for Hand-to-Mouth.

D. All the alternatives are equivalent.

Reference no: EM131862536

Questions Cloud

Generate a random vector and calculate the expected value : How many Gigabytes of data a person uses per month, rounded up to the nearest multiple of 10 Gbytes - Explore the LineWidth property in the plot function

What is the WACC of this firm : The Hudba corporation has an expected EBIT of $2 million in perpetuity. What is the WACC of this firm?

How many argon atoms are in a unit cell : Argon crystallizes in the face-centered cubic cell arrangement at 40 K. How many Argon atoms are in a unit cell?

Calculate the vapour pressure : Calculate the vapour pressure of a 5% by mass benzoic acid [C7H6O2(aq)] in ethanol solution at 35oC.

Hand-to-mouth is currently cash-constrained : Hand-to-Mouth (H2M) is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or take out a loan.

Discuss human resource and quality management skills : Imagine your company is being considered for subcontracting the management of a project because of your firm's excellent human resource and quality management.

How many liters of chlorine would it take : how many liters of chlorine would it take to shock a pool with the surface area of 24.9 m^2 and an average depth of 4.2 ft?

Which tenets of cybersecurity were violated in the breach : Which tenets of cybersecurity were violated in the breach? How were those attacks executed to bypass network defenses?

Glass and the air surrounding : A glass initially contains 100 g of ice and 50 g of water. The ice, the water, the glass and the air surrounding them are all at T = 0 °C and P = 1 atm.

User Account

All Pages