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1. Duncan Brooks needs to borrow $500, 000 to open new stores. Brooks can borrow $500,000 by issuing 5%, 1 0-year bonds at 96. How much will Brooks actually receive in cash under this arrangement? How much must Brooks pay back at maturity? How will Brooks account for the difference between the cash received on the issue date and the amount paid back?
2. Brooks prefers to borrow for longer periods when interest rates are low and for shorter periods w hen interest rates are high. Why is this a good business strategy?
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Chapter 12 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (6th Edition)
- 2. Aiman borrows RM750 for 5 months from Bank ABC who charges a 9% simple discount rate. (a) (b) What size of loan should Aiman ask for in order to receive RM1,200 cash? (c) What is the equivalent simple interest rate he pays on the loan? How much money does Aiman receive?arrow_forwardTo go on a summer trip, Keith borrows $600. He makes no payments until the end of 2 years, when he pays off the entire loan. The lender charges simple interest at an annual rate of 4%. Answer the following questions. If necessary, refer to the list of financial formulas (a) How much total interest will Keith have to pay? ${ (b) What will the total repayment amount be (including interest)? $0arrow_forward4. What is the purpose of a bridge loan? 5. Distinguish between bank discount and simple interest.6. Differentiate between a stated rate of interest and an effective rate of interest. 7. What is the significance of finding the internal rate of return (IRR)? 8. Jill Kramer borrowed $25,000 to pay for a startup business. Jill must repay the loan at the end of five months in one payment with a 6 percent simple interest rate.What is the total amount that Jill must repay in five months?How much interest does Jill repay?9. Joe Jones went to his bank to find out how long it will take for $1,000 to amount to $1,350 at 9 percent simple interest. Solve Joe's problem.arrow_forward
- Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank. Mystic offers 16% interest compounded semiannually. Four Rivers offers 12% interest compounded quarterly. Melvin has $10,500 to invest. He expects to withdraw the money at the end of 9 years. Calculate interest for each bank and identify which bank gives Melvin the better deal? (Use the Table provided.) Note: Do not round intermediate calculations. Round your answers to the nearest cent. Interest Mystic Four Rivers Better dealarrow_forwardSuppose that you owe $2,000 on a credit card that charges 18% APR and you pay either the minimum 10% or $20, whichever is higher, every month. How long will it take you to eliminate the debt? Assume that the bank uses the previous-balance method to calculate your interest, meaning that the bank does not subtract the amount of your payment from the beginning balance but charges you interest on the previous balance.arrow_forward3. What are the advantages and disadvantages of a fixed principal, fixed interest loan? 4. What is the purpose of a bridge loan? 5. Distinguish between bank discount and simple interest.6. Differentiate between a stated rate of interest and an effective rate of interest. 7. What is the significance of finding the internal rate of return (IRR)? 8. Jill Kramer borrowed $25,000 to pay for a startup business. Jill must repay the loan at the end of five months in one payment with a 6 percent simple interest rate.What is the total amount that Jill must repay in five months?How much interest does Jill repay?9. Joe Jones went to his bank to find out how long it will take for $1,000 to amount to $1,350 at 9 percent simple interest. Solve Joe's problem.arrow_forward
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT