Question

Need the EAR for each alternative please

Hand-to-Mouth (H2M) is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or take out a loan. They owe the supplier $11,000 with terms of 2/10 Net 40, so the supplier will give them a 2% discount if they pay by today (when the discount period expires). Alternatively, they can pay the full $11,000 in one month when the invoice is due. H2M is considering three options: Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $11,000 in one month. Alternative B: Borrow the money needed to pay its supplier today from Bank A, which has offered a one-month loan at an APR of 11.7%. The bank will require a (no-interest) compensating balance of 5.3% of the face value of the loan and will charge a $110 loan origination fee. Because H2M has no cash, it will need to borrow the funds to cover these additional amounts as well. Alternative C: Borrow the money needed to pay its supplier today from Bank B, which has offered a one-month loan at an APR of 14.8%. The loan has a 1.2% loan origination fee, which again H2M will need to borrow to cover.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

w x 199+ 2x E: ENG 11:43 31-07-2020 732 х FH517 fx EY EZ FA FB FC FD FE FF FG FH FI F) TERMS OF CREDIT – EAR = 2/10 NET 40 ((1 + (discount /(1-discount))) (365 / (final date - early date)) )- 1 (1 + (0.02/(1-0.02))^(360/(40-10))) - 1 = 27.43% EAR = EX 495 496 497 ALTA 498 499 500 501 ALT B 502 503 504 505 506 507 BANKA net loan amount compensating balance origination fee loan amount interest for a month rate for 30 days = 11000 5.30% 110 11731.78 (10000+110)/(1-0.053)] 114.38 [=11731.78*11.7%*1/12 ] 2.0399% [(110+114.38)/11000] 508 EAR = 27.85% (1+2.0399%)^(365/30) - 1 BANK B 509 510 ALTC 511 512 513 514 net loan amount origination fee loan amount interest for a month rate for 30 days = 11000 132 (11000 x 1.2%) 11132 (11000 + 132] 137.29 [11132 x 14.8%*1/12] 2.4481% [(132 + 137.29)/11000] 515 516 EARE 34.21% (1+2.4481%)^(365/30) - 1 5171 518 ANSWER : : ALTERNATIVE A: : WITH THE LOWEST EFFECTIVE ANNUAL RATE ... Z SCORE insu pv fv insu pv fv cash opti LINE OF CREDIT Sheets | eoq miller CARD BANKER ACCEPTANC FACTOR RECEIVABLE SI DISC FOCAL WC REQUIRE ...