Reference no: EM131978985
Question: Harper Engine Company needs $602,000 to take a cash discount of 2.50/10, net 110. A banker will loan the money for 100 days at an interest cost of $14,600.
a. What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Effective rate of interest %
b. How much would it cost (in percentage terms) if Harper did not take the cash discount but paid the bill in 110 days instead of 10 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Cost of not taking a cash discount %
c. Should Harper borrow the money to take the discount?
Yes
No
d. If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $602,000? (Round your answer to 2 decimal places.)
Amount to be borrowed $
e-1. What would be the effective interest rate in part d if the interest charge for 100 days were $12,600? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Effective rate of interest %
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