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Short- Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 9% nominal rate; (b) borrow on a 3- month, but renewable, loan basis at an 11.6% nominal rate; (c) borrow on an installment loan basis at a 7% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places. Credit A: Credit B: 9% 12.1 % 7 % Credit C: Credit D: 8% What is the least expensive type of credit? Credit DV

Short- Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 9% nominal rate; (b) borrow on a 3- month, but renewable, loan basis at an 11.6% nominal rate; (c) borrow on an installment loan basis at a 7% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places. Credit A: Credit B: 9% 12.1 % 7 % Credit C: Credit D: 8% What is the least expensive type of credit? Credit DV

Intermediate Financial Management (MindTap Course List)
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 7P: Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital...
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Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 9% nominal rate; (b) borrow on a 3- month, but renewable, loan basis at an 11.6% nominal rate; (c) borrow on an installment loan basis at a 7% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places. Credit A: 9 % Credit B: 12.1 % Credit C: 7 % Credit D: 8 % What is the least expensive type of credit? Credit D
Transcribed Image Text:Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 9% nominal rate; (b) borrow on a 3- month, but renewable, loan basis at an 11.6% nominal rate; (c) borrow on an installment loan basis at a 7% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places. Credit A: 9 % Credit B: 12.1 % Credit C: 7 % Credit D: 8 % What is the least expensive type of credit? Credit D
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