FM27 8 - 27-7 Accounts payable: ⎛ 3 ⎞ ⎛ 360 ⎞...

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Unformatted text preview: 27-7 Accounts payable: ⎛ 3 ⎞ ⎛ 360 ⎞ Nominal cost = ⎜ ⎟ ⎜ ⎟ = 0.0204(7.2) = 14.69%. ⎝ 97 ⎠ ⎝ 80 ⎠ EAR cost = (1.03093)4.5 - 1.0 = 14.69%. Bank loan: 0 | i=? 500,000 -60,000 (discount interest) 440,000 1 | -500,000 With a financial calculator, enter N = 1, PV = 440000, PMT = 0, and FV = -500000 to solve for I = 13.636% ≈ 13.64%. Note that, if Masson actually needs $500,000 of funds, he will have to borrow $500,000 1 − 0.12 = $568,181.82. The effective interest rate will still be 13.64%. The bank loan is the lowest cost source of capital available to D.J. Masson at 13.64%. 27-8 a. Simple interest: 12%. b. 3-months: (1 + 0.115/4)4 - 1 = 12.0055%, or use the interest conversion feature of your calculator as follows: NOM% = 11.5; P/YR = 4; EFF% = ? EFF% = 12.0055%. Answers and Solutions: 27 - 8 ...
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