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Chapter 3: 18BP_b (page 251)
If you borrow \(5,300 at \)400 interest for one year, what is your effective interest rate for the following payment plans?
b. Semi-annual payments.
The effective interest rate is 10.06%.
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What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?
Commercial paper may show up on corporate balance sheets as either a current asset or a current liability. Explain this statement.
What are three quantitative measures that can be applied to the collection policy of the firm?
Bombs Away Video Games Corporation has forecasted the following monthly sales:
January | \(100,000 |
February | \)93,000 |
March | \(25,000 |
April | \)25,000 |
May | \(20,000 |
June | \)35,000 |
July | \(45,000 |
August | \)45,000 |
September | \(55,000 |
October | \)85,000 |
November | \(105,000 |
December | \)123,000 |
Total annual sales | \(756,000 |
Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for \)5 per unit and costs \(2 per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.
Of each month’s sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.
b. Prepare a monthly schedule of cash receipts. Sales in the December before the planning year are \)100,000. Work part b using dollars.
What advantages do compensating balances have for banks? Are the advantages to banks necessarily disadvantages to corporate borrowers?
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