Solve for maximum interest rate on borrowed funds

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• Finance-Asset Management

  On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 9% during the year.

• A firm needs $1 million in additional funds. What will be the firm's earnings under each alternative if earnings before interest and taxes (EBIT) are $430,000? Why do earnings tend to fluctuate more with the use of short-term debt than with long-term debt?

  A firm needs $1 million in additional funds. These can be borrowed from a commercial bank with a loan at 6 percent for one year or from an insurance company at 9 percent for five years. The tax rate is 30 percent. A.

• Fed practicies and policies

  Those who need additional funds to meet their reserve requirements can borrow them, while banks with excess reserves can lend them out for interest. The federal funds rate is determined by supply and demand for reserve funds.

• Calculation of banking required reserves

  Banks borrow more reserves at the discount window and total reserves rise because borrowed reserves increase. As the demand for reserves goes up, the federal funds rate rises.

• Basic concepts in Finance

  Interest rate on borrowed funds 8.0% Interest savings=16666.67d*8%=1333.334d Interest savings should be more than annual costs of lockbox system to make it viable. 1333.334d>2100 d>2100/1333.334 d>1.57 days b.

• expected rate of return

  Expected Rate of return = (550-500)/500 = 0.10 or 10% Rate of interest for borrowing funds = 8% Since the expected rate of return is higher than the interest rate on borrowed funds, the publisher should invest in the machine.

• Cash Conversion Cycle Examples

  On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year.

• Borrowing and Compensating Balance

  b) Given your answer to part a and a stated interest rate of 9 percent on the total amount borrowed, what is the effective rate on $400,000 actually being used? Digital Access Inc., needs $400,000 in funds for a project.

• Financial Management Problem Set

  Effective interest rate = (interest expense on amount borrowed + total fees)/(Amount borrowed - compensating balance) = ($200000*50%*11%+1000)/(100000-200000*15%)=17.14%.