Purchase Solution

Find the cost of loan in the given cases.

Not what you're looking for?

Ask Custom Question

Problem 1
Blake Company has 3400 hourly workers. They work 40 hours a week, at the rate of $7.00 an hour, and they are paid every Friday. The company has decided to pay them twice a month. The cost of printing and processing each check is $1.25. The cost of capital to the company is 14%. Find the present value of the annual savings created by this decision. Find the value added to the company by this procedure.

Problem 2
Chatterton Company has obtained a $75,000 short-term loan from the bank with the understanding that Chatterton will repay the loan in two equal monthly installments of $38,250 each. The first installment is due after 30 days, and the second after 60 days. Find the cost of this loan for Chatterton.

Problem 3
(A) De la Mare Company has $140,000 in accounts receivable that will be collected within 75 days. Since de la Mare needs cash immediately, it has decided to factor them and has received $130,000. Find the cost of this loan for de la Mare.
(B) Donne Factoring Company, who took the receivables, actually was able to collect only $135,000 after 90 days. Find the rate of return on this investment for Donne.

Purchase this Solution
Solution Summary

There are 3 problems. Solution to first problem depicts the steps to estimate the value to the company if wages are paid bi-monthly. Solution to other problems depict the steps to estimate the cost of loan in the given cases.

Solution Preview

See the attached file.

7.1. Blake Company has 3400 hourly workers. They work 40 hours a week, at the rate of $7.00 an hour, and they are paid every Friday. The company has decided to pay them twice a month. The cost of printing and processing each check is $1.25. The cost of capital to the company is 14%. Find the present value of the annual savings created by this decision. Find the value added to the company by this procedure.

Annual Cost of labor=3400*40*7*52=$49504000
Weekly cost of labor=49504000/52=$952000
Check printing and processing cost per week=3400*1.25=$4250

Weekly Cost=C=952000+4250=$956250
Cost of capital=r=14%/52 weekly
Number of payments=n=52
PV of weekly payments is given by

Now let us calculate ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Basics of corporate finance

These questions will test you on your knowledge of finance.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Introduction to Finance

This quiz test introductory finance topics.

View More Free Quizzes
Related BrainMass Solutions

  • Interest cost and effective interest rate

    Effective annual rate of interest on fixed 60-day loan Effective 60-day Rate Periods in Year Effective Annual Rate Floating Rate Loan Given Data: First 30 days Next 30 days Days 365 365 Loan $200,000.00 $200,000.00

  • Cost of Capital

    Required rate of return=3.3%+0.70*(10.5%-3.3%)=8.34% Answer 8.34% Solution determines the most appropriate option in the given cases.

  • EAR / APR

    Find the EAR in each of the following cases: Stated Rate (APR) # of times compounded Effective rate (EAR) 8% Quarterly 16% Monthly 12% Daily 15% Infinite

  • Yield Curve

    Due to the fact that the cost of borrowing the money, or the interest rate, tends to increase commensurate with the longevity of the loan term, it is usually in the best interest of a borrower to attempt to ensure that their maturity date on is of particular

  • Preparing loan amortization schedule

    More tax was to be paid in that case. We find that after tax cost of debt is much lower and cost of capital is reduced because of debt financing. Encl.

  • Cash conversion cycle, NPV for credit, Economic order quantity

    (Cost of bank loan) A bank loan agreement calls for an interest rate equal to prime rate plus 1%.

  • Rates of Change : Cost and Marginal Cost

    A company determines that the cost in dollars to the manufacture x cases of the dvd "math caught in embarrassing moments" is given by C(x) = 100 + 15x - x^2, (0< or = x < or = 7) The rate of change in the cost is C'(x) = 15-2x a.) find the average

  • Dollar amount of acceptable accounts receivable collateral

    If the firm had made a purchase of $100,000 for which it had been given terms of 2/10 net 30, would it increase the firm's profitability to give up the discount and not borrow as recommended in part b? Why or why not?

  • Five years ago, you bought a house for $151,000.

    Since there is no number given for the refinance costs you would want to make sure that when you look at the cost of the mortgage that you lower that number more than the cost of refinancing.

View More Related Solutions