Biochemical Corporation requires $650,000 in financing over the next three years. The firm can borrow thefunds for three years at 12.60 percent interest per year. The CEO decides to do a forecast and predicts that ifshe utilizes short-term financing instead, she will pay 9.25 percent interest in the first year, 13.50 percentinterest in the second year, and 10.50 percent interest in the third year. Assume interest is paid in full at the endof each year.Determine the total interest cost under each plan.Long-term fixed-rateShort-term variable-rateWhich plan is less costly? multiple choiceShort-term variable-rate planLong-term fixed-rate planinterest cost

To determine the total interest cost under each plan, the formula isInterest =Principal Amount *…

Answered: Biochemical Corporation requires…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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8. Biochemical Corp. requires $500,000 in financing over the next three years. The firm can borrow the funds for three years at 10.60 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 7.25 percent interest in the first year, 11.90 percent interest in the second year, and 8.15 percent interest in the third year. Determine the total interest cost under each plan. Which plan is less costly?
Boatler Used Cadillac Co. requires $850,000 in financing over the next two years. The firm can borrow the funds for two years at 12 percent interest per year. Ms. Boatler decides to do forecasting and predicts that if she utilizes short-term financing instead, she will pay 7.75 percent interest in the first year and 13.55 percent interest in the second year. Assume interest is paid in full at the end of each year. What is the short term variable rate?
The CFO of Kendrick Enterprises, is evaluating a 10-year, 7.6 percent loan with gross proceeds of $6,400,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 23 percent and the loan will not increase the risk of financial distress for the company. a. Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the net present value of the loan including flotation costs.
Boatler Used Cadillac Co. requires $850,000 in financing over the next twoyears. The firm can borrow the funds for two years at 12 percent interest peryear. Mr. Boatler decides to do forecasting and predicts that if he utilizes shortterm financing instead, he will pay 7.75 percent interest in the first year and13.55 percent interest in the second year. Determine the total two-year interestcost under each plan. Which plan is less costly?
ABC would like to hire two loan collectors to speed up its collection process. Each of the loan collectors will be given total annual benefits of P150000 per year. The entity earns P30000000 in sales, 10% of which are cash. The entity has a 365-day per year and a minimum required rate of return of 10%. the current average age of receivables is 70 days but with the loan collectors, it is forecasted to decrease to 30 days. How much is the net benefit or cost of this option?
A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. The financial manager expects short-term rates to rise to 11 percent in the second year. At that time long-term rates will have risen to 12%. What will be the firm's projected earnings under each alternative in the second year?
Give correct typing answer with explanation and conclusion to all parts Biochemical Corp. requires $540,000 in financing over the next three years. The firm can borrow the funds for three years at 11.80 percent interest per year. The CEO decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 8.50 percent interest in the first year, 12.90 percent interest in the second year, and 9.75 percent interest in the third year. Assume interest is paid in full at the end of each year. a. Determine the total interest cost under each plan. Long-tern fixed rate-Interest cost Short-term variable rate-Interest cost b. Which plan is less costly? multiple choice Short-term variable-rate plan Long-term fixed-rate plan
Pearson International Publishing Company is trying to decide whether torevise its popular textbook, Fundamental of Corporate Finance. The companyhas estimated that the revision will cost RM65,000. Cash flows for the firstyear is RM18,000 and it will increase by 4 percent per year. The book will berevised back after five years. The initial costs are paid now, and revenues arereceived at the end of each year. If the company requires a 10 percent returnfor the investment, should it undertake the revision.
Anderson Manufacturing Co., a small fabricatorof plastics, needs to purchase an extrusion moldingmachine for $150,000. Anderson will borrow moneyfrom a bank at an interest rate of 7% over five years.Anderson expects its product sales to be slow duringthe first year, but to increase subsequently at an annualrate of 10%. Anderson therefore arranges with the bankto pay off the loan on a “balloon scale,” which resultsin the lowest payment at the end of the first year andeach subsequent payment being just 10% higher overthe previous one. Determine the five annual payments.
A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. What will be the firm’s projected earnings under each alternative for the first year? The financial manager expects short-term rates to rise to 11 percent in the second year. At that time long-term rates will have risen to 12%. What will be the firm’s projected earnings under each alternative in the second year? What are the crucial considerations when selecting between short- and long-term sources of finance?
A financial manager is considering two possible sources of funds necessary to finance a $10,000,000 investment that will yield $1,500,000 before interest and taxes. Alternative one is a short-term commercial bank loan with an interest rate of 8 percent for one year. The alternative is a five-year term loan with an interest rate of 10 percent. The firm's income tax rate is 30 percent. What will be the firm's projected earnings under each alternative for the first year?
Corgi, Inc. plans to update its equipment at a total cost of $99,000. Management anticipates making a $19,000 down payment and borrowing the remainder from a local commercial bank at 14 percent interest. The first option provides for five equal, annual payments to be made at the end of the year. The second option requires five equal, annual payments plus a balloon payment of $19,000 at the end of the fifth year. What are the annual payments required by each option? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest cent. The annual payment under the first option: $ The annual payment under the second option: $

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