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Rufina [12.5K]
3 years ago
9

Wizard Corp. needs to take out a one-year bank loan of $600,000 and has been offered loan terms by two different banks. One bank

has offered a simple interest loan of 10% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 7% add-on interest to be repaid in 12 equal monthly installments.
Based on a 360-day year, what will be the monthly payment for each loan for November?
Value
Simple interest monthly payment 58,850.00
Add-on interest monthly payment 48,150.00
42,800.00
53,500.00
Choose the answer that best evaluates the following statement:
A bank loan officer has been approached by a start-up company that needs a five-year loan to purchase the equipment for its first project. The project will have a life of five years. At the end of five years, the equipment will be worthless. The founders of the company told the loan officer that they would be willing to pay a much higher interest rate on a simple interest loan rather than contracting to an add-on interest loan.
A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.
B. The loan officer should offer the company a simple interest loan. The bank will make more money in the long run, because it can charge a much higher interest rate.
Business
1 answer:
Paladinen [302]3 years ago
4 0

Answer: a. $53500

b. A. The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.

Explanation:

a. Based on a 360-day year, the monthly payment for each loan for November will be:

Principal = $600,000

Interest rate = 10%

Simple interest = (P×R×T)/100

= (600000 × 10× 1) /100

= $60000

The simple interest per month which will also be thesame for Novemeber will be:

= 60000/12

= $5000

Since add on interest is 7%, then the interest will be:

= 7% × $600,000

= 0.07 × $600,000

= $42000

Therefore, the interest for month of November will be:

=(600000 +42000)/12

= $642000 / 12

= $53500

b. The answer that best evaluates the statement given is option B. It should be noted that since it's a startup company, there may be challenges in repaying the loan. Therefore, the best scenario will be that the loan should be given on add on interest basis.

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6 0
3 years ago
Ross wants to invest some money that he just inherited. He found that his bank offers a savings account paying a guaranteed 3% r
LUCKY_DIMON [66]

Answer:

(C) will probably have to accept a higher level of risk

Explanation:

Investing usually involve a trade-off between risk and return. Thus, relative to the guaranteed 3% rate of return offered by his bank, he will need to accept a higher level of risk to earn a higher return on his money.

Option A is incorrect because investing overseas may not earn a higher return, especially if the investment is in an oversea sovereign asset. Option B is incorrect because investing in a business with a very stable and predictable rate of return will likely yield a lower or similar rate of return as the bank savings account due to its low level of risk. Option D is incorrect as engaging in illegal activities does not necessarily guarantee a higher rate of return on a consistent basis.

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Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management
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Answer:

Residual risk

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Is a type of risk whose threat(s) is not completely removed even after putting all control measures in place. It is calculated as:

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7 0
3 years ago
Match these statements with the appropriate reasoning fallacy below: Killing people is wrong, so the death penalty is wrong! How
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7 0
3 years ago
Easter Egg and Poultry Company has $1,710,000 in assets and $698,000 of debt. It reports net income of $196,000. a. What is the
notka56 [123]

Answer:

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%

Explanation:

a) Return on assets = \frac{Net Income}{Total Assets} X 100

= \frac{196,000}{1,710,000} X 100 = 11.46 percent

b) Return on stockholder's equity = \frac{Net income}{Equity} X 100

Equity =Total assets - Debt = $1,710,000 - $698,000 = $1,012,000

Return on equity = \frac{196,000}{1,012,000} X100 = 19.37 percent

c) Asset Turnover ratio = \frac{Net Sales}{Total Assets} = 3.5

then Net sales = 3.5 X Total Assets = = 3.5 X $1,710,000 = $5,985,000

Profit margin = \frac{Net profit}{Net sales} X 100 [tex]= \frac{196,000}{5,985,000} X 100 = 3.27 percent

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%

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