If Analog computers can borrow at 9.8% for 3 years, what is the effective rate o
ID: 2784743 • Letter: I
Question
If Analog computers can borrow at 9.8% for 3 years, what is the effective rate of interest on a $835,000 loan where a 16% compensating balance is required? (Use 360 days in a year. Round your answer to 2 decimal places.)
8.97%
11.67%
16.97%
14.42%
Price Corp. is considering selling to a group of new customers and creating new annual sales of $410,000. 4% will be uncollectible. The collection cost on these accounts is 6% of new sales, the cost of producing and selling is 78% of sales and the firm is in the 31% tax bracket. What is the profit on new sales?
$319,800
$29,966
$33,948
$43,948
If Analog computers can borrow at 9.8% for 3 years, what is the effective rate of interest on a $835,000 loan where a 16% compensating balance is required? (Use 360 days in a year. Round your answer to 2 decimal places.)
Explanation / Answer
1. Amount to Borrow = (Amount needed / 1-C), Where C = loan.
So, Amount Needed = $835,000
Loan = 16%.
So, Amount to Borrow = $835,000/(1-0.16)
= $835,000/0.84
= $994,047.61.
Now Effective rate = Interest / Principal - Compensating balance x360/days outstanding
So, answer would be 16.97%/
2. The profit on new sales is $410,000 X 78%
=$319,800.