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FM27 11 - Face amount of loan = 65 250 $ 20 15 1 250 $ =...

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b. Takes Discounts : If Malone takes discounts its A/P balance would be $83.33. The cash it would need to be loaned is $500 - $83.33 = $416.67. Since the loan is a discount loan with compensating balances, Malone would require more than a $416.67 loan. Face amount of loan = 65 . 0 67 . 416 $ 20 . 0 15 . 0 1 67 . 416 $ = = $641.03. Doesn’t Take Discounts : If Malone doesn’t take discounts, its A/P balance would be $250. The cash needed from the bank is $500 - $250 = $250.
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Unformatted text preview: Face amount of loan = 65 . 250 $ 20 . 15 . 1 250 $ = − − = $384.62. c. Nonfree Trade Credit : Nominal annual cost: period Discount g outstandin is credit Days 360 % Discount 100 % Discount − × − = 20 360 99 1 × = 18.18%. Effective cost: %. 83 . 19 1 1983 . 1 1 ) 0101 . 1 ( 1 99 1 1 18 18 = − = − = − ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ + Answers and Solutions: 27 - 11...
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