A company has agreed to pay $3.5 million in 7 years to settle a lawsuit. How much must it invest in an account paying 6 % annual interest compounded monthly to have that amount when it is due? What is the interest rate per period? (Type an integer or decimal rounded to four decimal places as needed.) The company should invest (Do not round until the final answer. Then round to the nearest dollar as needed. Use the answer from the previous step to find this answer.)

A company has agreed to pay $3.5 million in 7 years to settle a lawsuit. How much must it invest in an account paying 6 % annual interest compounded monthly to have that amount when it is due? What is the interest rate per period? (Type an integer or decimal rounded to four decimal places as needed.) The company should invest (Do not round until the final answer. Then round to the nearest dollar as needed. Use the answer from the previous step to find this answer.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...

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Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.
You put $600 in the bank for 3 years at 15%. A. If Interest Is added at the end of the year, how much will you have in the bank after one year? Calculate the amount you will have in the bank at the end of year two and continue to calculate all the way to the end of the third year. B. Use the future value of $1 table In Appendix B and verify that your answer is correct.
If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
A company has agreed to pay a lawsuit of 3 million dollars in 4 years. How much should the company deposit now into an account paying 6% interest compounded monthly to make that payment at the due date?
Brady and Sons uses accounts receivable as collateral to borrow money for operations and payroll when revenues are low. If the company borrows $300,000 now at an interest rate of 12% per year, compounded monthly, and the rate increases to 15% per year, compounded monthly after 4 months, how much will the company owe at the end of 1 year?
A company has a bank loan outstanding that requires it to make annual payments of $1,000,000 at the end of each of the next three years. The bank has offered to the company to skip the next two payments and instead make a single payment at the end of the loan's term in three years' time. If the interest rate on the loan is 6% p.a., compounded quarterly, the final payment that will make the company indifferent between the two payment options is closest to: Group of answer choices A $2,666,283. B $2,673,012. C $3,183,600. D $3,187,856.
Suppose that a company enters into a FRA that is designed to ensure it will receive a fixed rate of 4.8% on a principal of $100,000,000 for a six-month period beginning in 4 years. If, in 4 years the six-month LIBOR is 5.2% for the ensuing six-month period, what is the value of the FRA at that point in time (i.e. in 4 years)? (Required precision: 0.01 +/- 0.01) (All interest rates in this problem are annual rates, compounded semi-annually)
Suppose an individual makes an initial investment of $2800 in an account that earns 7.8%. compounded monthly, and makes additional contributions of $100 at the end of each month for a period of 12 years. After these 12 years, this individual wants to make withdrawals at the end of each month for the next 5 years (so that the account balance will be reduced to s0). (a) How much is in the account after the last deposit is made? b) How much was deposited? (c) What is the amount of each withdrawal? (d) What is the total amount withdrawn?