/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 15BP Randall Corporation plans to bor... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 3: 15BP (page 250)

Randall Corporation plans to borrow \(233,000 for one year at 20 percent from the Waco State Bank. There is a 21 percent compensating balance requirement. Randall Corporation keeps minimum transaction balances of \)17,500 in the normal course of business. This idle cash counts toward meeting the compensating balance requirement. What is the effective rate of interest?

Short Answer

Expert verified

The effective interest rate is 23.11%.

Step by step solution

01

Information provided in the question

Loan amount = $233,000

Loan term = 1 year

Interest rate = 20%

Compensating balance = 21%

Minimum transaction balance = $17,500

02

Calculation of interest payable

The interest payable is $46,600.

Interestpayable=Interest脳Principal=20%脳$233,000=$46,600

03

Calculation of compensating balance in monetary terms

The compensating balance is $48,930.

Compensatingbalance=Compensatingbalancerate脳Principal=21%脳$233,000=$48,930

04

Calculation of additional funds needed by the bank

The additional funds needed by the bank is $31,430.

Additionalfundsneeded=Requiredcompensatingbalance-Minimumtransactionbalance=$48,930-$17,500=$31,430

05

Calculation of effective interest rate on loan

The effective interest rate with a 21% compensating rate is 23.11%.

Effectiverate=InterestPrincipal-Compensatingbalance脳DaysinyearDaysloaninoutstanding=$46,600$233,000-$31,430脳360360=23.11%

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

City Farm Insurance has collection centers across the country to speed up collections. The company also makes its disbursements from remote disbursement centers so the firm鈥檚 checks will take longer to clear the bank. Collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding 12 percent per annum.

b. How much can City Farm earn in dollars per year on short-term investments made possible by the freed-up cash?

Bombs Away Video Games Corporation has forecasted the following monthly sales:

January

\(100,000

February

\)93,000

March

\(25,000

April

\)25,000

May

\(20,000

June

\)35,000

July

\(45,000

August

\)45,000

September

\(55,000

October

\)85,000

November

\(105,000

December

\)123,000

Total annual sales

\(756,000

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month鈥檚 production is equal to annual sales (in units) divided by 12.

Of each month鈥檚 sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is \)5,000, which is also the minimum desired.

Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 49,000 units per year, an ordering cost of \(8 per order, and carrying costs of \)1.60 per unit.

d. What is the total cost of ordering and carrying inventory?

Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of \(6 per order, and carrying costs of \)2.40 per pipe.

c. What will the average inventory be?

A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Influences On Business

Read Explanation

Accounting

Read Explanation

Operational Management

Read Explanation

Strategy

Read Explanation

Managers

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.