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Problem - BoGo Textbooks is evaluating two options for funding its working capital during the next year. Option 1 is borrowing from the bank using a 180-day discount interest loan, which has a quoted interest rate equal to 8 percent and requires a 20 percent compensating balance. BoGo normally maintains an average checking account balance of $10,000. Option 2 is to issue 180-day commercial paper, which has an annual interest equal to 9 percent and requires BoGo to pay a transaction fee equal to 0.3 percent.
Required -
(a) If BoGo actually needs $200,000 to finance working capital during the next year, how much must BoGo borrow with each option so that $200,000 can be used to pay the bills?
(b) Which option is better?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
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