Problem 1: Compute the annual approximate interest cost of not taking a discount using the following scenarios. What conclusion can be drawn from the calculations?
- 2/10 net 20
- 2/10 net 30
- 2/10 net 40
- 2/10 net 50
- 2/10 net 60
Problem 2: On January 2, 20X1, City Hospital established a line of credit with First Union National Bank. The terms of the line of credit called for a $200,000 maximum loan with an interest of 11 percent. Then compensating balance requirement is 15 percent of the total line of credit (with no additional fees charged).
Problem 3: What is the effective interest rate for City Hospital if 50 percent of the total amount were used during the year?
Problem 4: How would the answer to part of a change if the additional fees were $500?
Problem 5: How would the answer to part of a change if the additional fees were $1,000?