Question

CDRW is evaluating an inventory financing arrangement with DVD banks. CDRW estimates an average monthly inventory...

CDRW is evaluating an inventory financing arrangement with DVD banks. CDRW estimates an average monthly inventory balance of $800,000. DVD Bank is offering a 12 percent APR loan on 75% of the value of the inventory. DVD's inventory storage and evaluation fees will be 1 percent a month on the total value of the inventory. What is the annual effective rate of the inventory loan?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Total interest will be paid = Interest rate x (Inventory balance x Percentage loan on inventory)

Total interest will be paid = 12% x (800000 x 75%)

Total interest will be paid = $72,000

---

Loan value = $600,000 (800000x75%)

---

Evaluation fee = Inventory value x 1% = 800000 x 1% = $8,000

---

Annual effective rate = Total interest paid /(Loan value-Evaluation fees)

Annual effective rate = 72000/(600000-8000)

Annual effective rate = 12.162162%

Annual effective rate = 12.16%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Please answer all parts of problem :) a) You borrowed $3,000 with "Add-on Interest" at 9%...
Please answer all parts of problem :) a) You borrowed $3,000 with "Add-on Interest" at 9% with 12 equal monthly payments to payoff the loan. What is the actual interest rate the lender is charging you in this deal. Choose the correct answer: 9% 13.51% 12.48% 10.15% 16.22% b) XYZ Inc entered in a 4 year contract with a client. XYZ will receive following cash flows at the end of each year. If they can earn 6% annual interest, what...
22. Mac Department Stores sell goods on terms of net 50. The store's average monthly sales...
22. Mac Department Stores sell goods on terms of net 50. The store's average monthly sales (all on credit) are $30,000. Mac pledges all of its receivables to the bank, which advances 75% of the face value of the receivables at a rate of 1.5% above prime. The bank also charges a 1% processing fee on all receivables pledged. Mac borrows the full amount possible, and the current prime rate is 6%. What is the annual percentage rate (APR)of using...
1. The inventory turnover of Long Corporation is 16×, and its closing inventory is $20,000. Assuming...
1. The inventory turnover of Long Corporation is 16×, and its closing inventory is $20,000. Assuming there are 360 days in a year, compute the company's inventory conversion period. (Give answer to one decimal place.) 22.5 days 24.2 days 3.5 days 42.8 days 55.5 days 2. If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal. Loosen credit terms to increase the firm's sales. Delay payments made...
Genesis Corp. is a traditional retailer that recently also started an Internet-based subsidiary that sells its...
Genesis Corp. is a traditional retailer that recently also started an Internet-based subsidiary that sells its product online. Its sales in September 2017 were $700,000. Tom Scott, the company president, is preparing for a meeting with Dan Harris, a loan officer with Mojito Bank, to review year end financing requirements. After discussions with the company’s marketing and finance managers, sales over the next three months were forecasted as follows. Sales in October 2017: $2,500,000, sales in November 2017: $3,500,000 and...
13. Mortgage payments Mortgages, loans taken to purchase a property, involve regular payments at fixed intervals...
13. Mortgage payments Mortgages, loans taken to purchase a property, involve regular payments at fixed intervals and are treated as reverse annuities. Mortgages are the reverse of annuities, because you get a lump-sum amount as a loan in the beginning, and then you make monthly payments to the lender. You’ve decided to buy a house that is valued at $1 million. You have $200,000 to use as a down payment on the house, and want to take out a mortgage...
a.-b. Merchandise Inventory, before adjustment, has a balance of $7,600. The newly counted inventory balance is...
a.-b. Merchandise Inventory, before adjustment, has a balance of $7,600. The newly counted inventory balance is $8,100. Unearned Seminar Fees has a balance of $6,100, representing prepayment by customers for five seminars to be conducted in June, July, and August 2019. Two seminars had been conducted by June 30, 2019. Prepaid Insurance has a balance of $12,600 for six months’ insurance paid in advance on May 1, 2019. Store equipment costing $4,350 was purchased on March 31, 2019. It has...
In your answers, you should properly show your work by writing down your entries into the...
In your answers, you should properly show your work by writing down your entries into the calculator. For instance, if you use the TVM worksheet of your financial calculator to compute how long it takes to double your account balance given 5% annual interest rate, you should write down your entries as: I/Y=5, PV=-1, PMT=0, FV=2, CPT N=? --- the question mark here stands for your answer to the question. Question 6 – PV, Ordinary Annuity, Compounding [2 points]: Find...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8 percent (APR), compounded quarterly (every 3 months). How much interest did John earn over the 15 years? a. $2,416.08 b. $45,620.62 c. $24,000.00 d. $28,318.95 e. $65,620.62 2. You are running short of cash and really need to pay your tuition. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $5,000 if you...
1 images Using a Spreadsheet to Calculate Yield to Maturity. What is the yield to maturity...
1 images Using a Spreadsheet to Calculate Yield to Maturity. What is the yield to maturity on the following bonds; all have a maturity of 10 years, a face value of $1,000, and a coupon rate of 9 percent (paid semiannually). The bonds’ current market values are $945.50, $987.50, $1,090.00, and $1,225.875, respectively. (LG 3-2) images. 2 Calculate the yield to maturity on the following bonds: (LG 3-2) A 9 percent coupon (paid semiannually) bond, with a $1,000 face value...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business is the manufacture and sale of gadgets. Because cash resources are limited, the company anticipates the need to have access to capital during the first year of operations and seeks to establish a line of credit with a local bank. The bank requires a complete operating and cash budget and pro-forma financial statements for 2021 as part of the loan application. The following information...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT