A+ Work

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 pay this expansion. Macrohard purchases under terms of 2/10, net 45 and before long pays on the 10th day, taking drops. The CFO is considering using raft credit to finance the additional working capital required. Alternatively, Macrohard hind(prenominal) end finance its expansion with a one-year contribute from its avow. The bank has quoted the following alternative loan terms: a) 10 portion localize on a simple fulfill loan, with periodic interest group payments. b) 9 shareage yearbook rate on a synthesis interest basis with no compensating balance. c) 8 pct yearbook rate on a give the axe interest basis, with a 10 percent compensating balance. d) 7 percent add-on interest, with monthly payments. Based strictly on deal considerations only, what should Macrohard do to finance its expansion? So lution: Cash tweet out rate = [Discount/(100-Discount)]*[360/(final period-Discount Period)] Cash Discount rate = [2/(100-2)]*[365/(45-10)] = 16.55% uncompromising annual rate = (1+.1655/(365/45))^(365/45) -1 = 17.80% a) 10 percent rate on a simple interest loan, with monthly interest payments. legal annual rate = (1+.10/12)^12 -1 = 10.47% b) 9 percent annual rate on a discount interest basis with no compensating balance. efficient 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 p ercent annual rate on a discount interest ba! sis, with a 10 percent...If you compliments to get a luxuriant essay, order it on our website: OrderEssay.net

If you want to get a full information about our service, visit our page: write my essay