Question 1. Calculate both the approximate and effective annual cost of foregoing the cash discount for each of the following suppliers of NUE Corp: Supplier LION 2/10 n/40 Assuming NUE Corp needs short-term financing, recommend whether it would be better to give up the cash discount or take the discount and borrow from a bank at 20% annual interest. Use 365 days per year. A. Give up the discount B. Take the discount and borrow Question 2. BRN Co. plans to borrow P10,000 from MLP Bank at a stated rate of 10% per annum. (Each item is independent with one another). 1. What is the effective rate if it is a “discounted note”, outstanding for a year? 2. What is the effective rate if it is a “discounted note”, assuming it will be outstanding only for 6 months? 3. What is the effective rate if it has a compensating balance of P2,000, outstanding for a year? 4. What is the effective rate if it has a compensating balance of P2,000, and the cash trapped in the compensating balance earns 2% a year, Brian maintains a minimum transaction balance of P500 in its account? Question 3 JFR Inc. issues P5,000,000 of commercial paper with a maturity of 3 months at an effective annual interest rate of 8%. What is the amount of proceeds (borrowed) in this issue? Question 4 Question 5 KAN Corporation arranged a revolving credit agreement amounting to P10,000,000 with a group of small banks. The firm paid an annual commitment fee of ½% of the unused balance of the loan commitment. On the used portion of the loan, KAN paid 1.5% above prime for the funds actually borrowed on an annual simple interest basis. The prime rate was at 9% for the year. 1. IF KAN Corp. borrowed P10,000,0000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total peso cost of the loan agreement for one year? 2. If KAN Corp. does not borrow at all, what was the total peso cost of the loan agreement for one year? 3. If KAN Corp. borrowed P6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total peso cost of the loan agreement for one year? Question 6 Question 7
