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The Macrohard Corporation projects an increase in sales from $18 jillion to $25 million, but it needs an additional $500,000 of current assets to take agree this expansion. Macrohard purchases under terms of 2/10, net 45 and currently pays on the 10th day, taking drops. The CFO is considering using tidy sum credit to finance the additional working capital required. Alternatively, Macrohard posterior end finance its expansion with a one-year loan from its avow. The bank has quoted the following alternative loan terms: a) 10 portion localize on a simple coddle loan, with periodic kindle payments. b) 9 shareage yearbook rate on a sack interest basis with no compensating balance. c) 8 pct yearbook rate on a snub interest basis, with a 10 pct compensating balance. d) 7 percent add-on interest, with monthly payments. Based strictly on spoken language considerations only, what should Macrohard do to finance its expansion? Solution: Cash take up out rate = [Discount/(100-Discount)]*[360/(final period-Discount Period)] Cash Discount rate = [2/(100-2)]*[365/(45-10)] = 16.55% cadaver yearly rate = (1+.1655/(365/45))^(365/45) -1 = 17.80% a) 10 percent rate on a simple interest loan, with monthly interest payments. utile annual rate = (1+.10/12)^12 -1 = 10.

47% b) 9 percent annual rate on a discount interest basis with no compensating balance. effective annual rate = (100/91) -1 = 9.89% c) 8 percent annual rate on a discount interest basis, with a 10 percent compensating balance. Effective annual rate = (90/82) -1 = 9.76% d) 7 percent add-on interest, with monthly payments. ! Effective Monthly step rate = -100 + (107/12)/(1+r) + -100 + (107/12)/(1+r)^2 ..-100 + (107/12)/(1+r)^12 So monthly rate is = 1.0566% Effective annual rate is = (1+1.05666)^12 -1 =13.44% So option C) should be chosen as it has low effective rate. 8 percent annual rate on a discount interest basis, with a 10 percent...If you call for to get a luxuriant essay, order it on our website: BestEssayCheap.com

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