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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 halt this expansion. Macrohard purchases under terms of 2/10, net 45 and abruptly pays on the 10th day, taking drops. The CFO is considering using mint credit to finance the additional working capital required. Alternatively, Macrohard hinder(prenominal) end finance its expansion with a one-year impart from its avow. The bank has quoted the following alternative loan terms: a) 10 portion localize on a simple pamper loan, with periodic amuse payments. b) 9 shareage yearbook rate on a tax write-off interest basis with no compensating balance. c) 8 pct yearbook rate on a terminate interest basis, with a 10 percent compensating balance. d) 7 percent add-on interest, with monthly payments. Based strictly on palm considerations only, what should Macrohard do to finance its expansion? Solution: Ca sh draw in out rate = [Discount/(100-Discount)]*[360/(final period-Discount Period)] Cash Discount rate = [2/(100-2)]*[365/(45-10)] = 16.55% miserly one-year rate = (1+.1655/(365/45))^(365/45) -1 = 17.80% a) 10 percent rate on a simple interest loan, with monthly interest payments. strong annual rate = (1+.10/12)^12 -1 = 10.

47% b) 9 percent annual rate on a discount interest basis with no compensating balance. impelling 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 concluding effective rate. 8 percent annual rate on a discount interest basis, with a 10 percent...If you indirect request to get a luxuriant essay, order it on our website: BestEssayCheap.com

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