Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 3: 20BP (page 251)

Lewis and Clark Camping Supplies Inc. is borrowing \(51,000 from Western State Bank. The total interest is \)15,700. The loan will be paid by making equal monthly payments for the next three years. What is the effective rate of interest on this instalment loan?

Short Answer

Expert verified

The effective interest rate is 19.96%.

Step by step solution

01

Information provided in the question

Loan amount = $51,000

Loan term = 3 year

Interest rate = $15,700

02

Calculation of effective interest rate when equal monthly instalments have to be made

The effective interest rate is 19.96%.

Effectiverateoninstalmentloan=2×Annualnumberofpayments×InterestTotalnumberofpayments+1×Principal=2×12×$15,70036+1×$51,000=$376,800$1,887,000=19.96%

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three days. Furthermore, the cash management department of her bank has indicated to her that she can defer her payments on her accounts by one-half day without affecting suppliers. The bank has a remote disbursement center in Florida.

a. If Neon Light Company has \(2.25 million per day in collections and \)1.05 million per day in disbursements, how many dollars will the cash management system free up?

b. If Neon Light Company can earn 6 percent per annum on freed-up funds, how much will the income be?

c. If the total cost of the new system is $400,000, should it be implemented?

Tobin Supplies Company expects sales next year to be \(500,000. Inventory and accounts receivable will increase \)90,000 to accommodate this sales level. The company has a steady profit margin of 12 percent with a 40 percent dividend pay-out. How much external financing will Tobin Supplies Company have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.

Barney’s Antique Shop has annual credit sales of \(1,620,000 and an accounts receivable balance of \)157,500. Calculate the average collection period (use 360 days in a year).

Briefly discuss three types of lender control used in inventory financing.

Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.

c. Should Henderson liberalize credit if a 16 percent after-tax return on investment is required?

See all solutions

Recommended explanations on Business Studies Textbooks

Human Resources

Read Explanation

Nature of Business

Read Explanation

Strategic Analysis

Read Explanation

Managers

Read Explanation

Influences On Business

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free