Question

Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows: January $ 10,200 April $ 10,200 February 4,200 May 11,200 March 5,200 June 6,200 Short-term financing will be utilized for the next six months. Projected annual interest rates are: January 6 % April 13 % February 7 May 12 March 10 June 12

a. Compute total dollar interest payments for the six months. (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.) Total Dollar Interest Payments

b-1. Compute the total dollar interest payments if long-term financing at 12 percent had been utilized throughout the six months? (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.) Total Dollar Interest Payments

b-2. If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or smaller than with the short-term financing plan?

	Larger
	Smaller

Answer 1

a).

Month	Rate	Monthly Rate	Amount Financed	Monthly Interest
January	6%	0.5%	$10,200	$51
February	7%	0.58%	$ 4,200	$24.50
March	10%	0.83%	$ 5,200	$43.33
April	13%	1.08%	$10,200	$110.50

May	12%	1%	$11,200	$112
June	12%	1%	$ 6,200	$62
Total				$403.33

b-1).

Month	Rate	Monthly Rate	Amount Financed	Monthly Interest
January	12%	1%	$10,200	$102
February	12%	1%	$ 4,200	$ 42
March	12%	1%	$ 5,200	$ 52
April	12%	1%	$10,200	$102

May	12%	1%	$11,200	$112
June	12%	1%	$ 6,200	$62
Total				$472

b-2). Total dollar interest payments would be larger under the long-term financing plan.

answered by: anonymous