What is the effective annual rate on the borrowing

Assignment Help Financial Management
Reference no: EM131074528

A firm has $900,000 in inventory qualifying for a short-term loan with a warehouse receipt. A commercial bank will accept this warehousing agreement and inventory as collateral and will advance 80% of the value of the inventory on loan at 6%. The bank charges $5,000 upfront for the agreement. The firm will use the borrowing for 60 days. What is the effective annual rate on the borrowing?

Reference no: EM131074528

Questions Cloud

Begin by constructing time line : A project has an initial cost of $70,400, expected net cash inflows of $14,000 per year for 12 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations
What price should you receive for the bond : Ten years ago your father purchased for you a 25-year $1,000 bond with a coupon rate of 7%. You now wish to sell the bond and learn that the current discount rate to use is 5%. What price should you receive for the bond?
What is the current yield and what is the yield to maturity : You purchased a bond for $875. It has a face value of $1,000, it pays $80 a year, and it matures after ten years. What is the current yield? What is the yield to maturity?
Calculate return on equity-debt is issued : Pendergast, Inc., has no debt outstanding and a total market value of $180,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. Calculate return on equity (ROE) under each of the three economic..
What is the effective annual rate on the borrowing : A firm has $900,000 in inventory qualifying for a short-term loan with a warehouse receipt. A commercial bank will accept this warehousing agreement and inventory as collateral and will advance 80% of the value of the inventory on loan at 6%. The ban..
What is the break-even level of output : What is the break-even level of output? If the firm sells 1,300 units, what are its earnings or losses?If sales rise to 2,000 units, what are the firm's earnings or losses?
What will be the effective annual rate on the loan : A firm needs full use of $2,000,000 to purchase a new machine. A bank has agreed to loan at 9% discounted interest for 180 days. The bank requires a .25% compensating balance. The bank charges fees in advance of $300. How much will the firm need to b..
What is the standard deviation : Consider the following information: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .15 .33 .43 .23 Good .55 .18 .14 .12 Poor .25 −.05 −.08 −.06 Bust .05 −.13 −.18 −.10 b-1 What is the vari..
Accounts receivable-what is the effective annual rate : A firm has $500,000 in accounts receivable. A commercial bank will accept these accounts receivable as collateral and will advance the firm 75% of the accounts receivable amount on loan at 6%. The bank charges a $5,000 credit checking fee. The firm w..

Reviews

Write a Review

Financial Management Questions & Answers

  Firm is considering actions which will raise its debt ratio

A firm is considering actions which will raise its debt ratio. It is anticipated that these actions will have no effect on sales, operating income, or on the firm's total assets. If the firm does increase its debt ratio, which of the following will o..

  Coupon bond-what is the yield to call of the bond

A 6.70 percent coupon bond with 28 years left to maturity can be called in nine years. The call premium is one year of coupon payments. It is offered for sale at $1,136.95. What is the yield to call of the bond?

  Find the coupon payments

A bond issued by company ABC has 7% coupon, 10 years to maturity, and is currently priced at $1010. What is the bond’s yield? (show the steps and calculations you did) Find the coupon payments. Draw the time-line diagram.

  Calculate the present value of the gas promotion

Car dealers are trying a number of promotional methods to induce car sales. One dealer offers a year’s supply of free gas to any consumer who buys a car during the month of July. Calculate the present value of the gas promotion

  Determine its cost of debt-pretax cost of debt

Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually. Wh..

  Variable cost-fixed cost and mixed cost

Distinguish between a variable cost, a fixed cost, and a mixed cost. Identify a publicly traded, well-known company, and identify what you envision would be a variable cost, a fixed cost, and a mixed cost for this company.

  Coupon paid semi annually bond

Three years ago, Joe bought a 5-year, 10% coupon paid semi annually bond for $1000. Currently, with interest rates having risen sharply, the bond is selling for $800 and you decide to sell it off. If you had re-invested the semi-annual coupons as you..

  Firm evaluates all of projects by applying the irr rule

A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 28,900 1 12,900 2 15,900 3 11,900 If the required return is 14 percent, what is the IRR for this project?

  What is the maximum increase in money supply

Assume that the Federal Reserve injects $2 billion into the financial system. If the reserve requirement is 18%, what is the maximum increase in money supply? Why might the maximum increase not be achieved?

  Calculate net patient service revenue

Calculate net patient service revenue (dollars in thousands), using the information below. The table below is a list of accounts at December 31, 2012, for healthy clinic (Dollars are in thousands)

  Description of two possible hedging approaches

For a U.K. firm to hedge a ?100,000 payable using options, there are two possible ways the firm can approach this. Can you please provide a description of each of the two possible hedging approaches?

  Characteristic of fractional reserve banking

Which of the following is characteristic of fractional reserve banking?

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