Use the ordinary interest method, 360 days, to solve the following word problem. Round to the nearest cent when necessary. Richie Powers is the owner of American Eagle Boats, a manufacturer of custom pleasure boats. Because of the economic recession and slow boat sales recently, American Eagle has begun accepting promissory notes from its dealers to help finance large orders. This morning American Eagle accepted a 90 day, 8.6% promissory note for $800,000 from one of its sales dealers. You are a manager for a bank, and Richie is one of your clients. Your bank's discount rate is currently 13%. Richie's goal is to discount the note as soon as possible, but not until the proceeds are at least equal to the face value of the note, $800,000. (a) As his banker, Richie has asked you to "run the numbers" at ten day intervals starting with day 20 and advise him as to when he can discount the note and still receive his $800,000. Find the bank discount (in $) for days 20, 30, and 40, and indicate for each discount whether it is too high or whether it is low enough for Richie to discount the note and still receive his $800,000. Day 20:$ ---Select--- too high low enough Day 30:$ ---Select--- too high low enough Day 40:$ ---Select--- too high low enough (b) (Challenge) Calculate the exact day the note should be discounted to meet Richie's goal. Day

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 29P

See similar textbooks

Related questions

Concept explainers

Question

Use the ordinary interest method, 360 days, to solve the following word problem. Round to the nearest cent when necessary.

Richie Powers is the owner of American Eagle Boats, a manufacturer of custom pleasure boats. Because of the economic recession and slow boat sales recently, American Eagle has begun accepting promissory notes from its dealers to help finance large orders. This morning American Eagle accepted a 90 day, 8.6% promissory note for $800,000 from one of its sales dealers.

You are a manager for a bank, and Richie is one of your clients. Your bank's discount rate is currently 13%. Richie's goal is to discount the note as soon as possible, but not until the proceeds are at least equal to the face value of the note, $800,000.

(a)

As his banker, Richie has asked you to "run the numbers" at ten day intervals starting with day 20 and advise him as to when he can discount the note and still receive his $800,000.

Find the bank discount (in $) for days 20, 30, and 40, and indicate for each discount whether it is too high or whether it is low enough for Richie to discount the note and still receive his $800,000.

Day 20:$ ---Select--- too high low enough

Day 30:$ ---Select--- too high low enough

Day 40:$ ---Select--- too high low enough

(b)

(Challenge) Calculate the exact day the note should be discounted to meet Richie's goal.

Day

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.