1. MSU Inc. typically has a monthly ledger balance of $2,000,000 and deposit float of $500,000. The First Bank of Morehead offers MSU an earnings credit rate of 0.60%. Meanwhile, the Second Bank of Morehead offers MSU an earnings credit rate of 0.40%. The reserve requirement ratio is 10% and the typical month has 30 days. During the typical month, how much worse off would MSU be if management chooses to bank with the Second Bank of Morehead, relative to the First Bank of Morehead?
a. $221.92
b. $665.75
c. $443.84
d. $1,109.59
2. Firm Z just purchased $200,000 in services from a supplier. The supplier offers a 1% discount if the payment occurs on delivery. Otherwise, Firm Z receives trade credit of net 50 days. If firm Z uses a discount rate of 8%, what should the firm do under these terms?
a. Take the discount and pay on delivery.
b. Take the discount and pay on Day 50.
c. Forgo the discount and pay on delivery.
d. Forgo the discount and pay on Day 50.
3. Your firm just purchased $100,000 in goods from your supplier on trade credit terms of 2/10 net 30. Your opportunity cost of funds is 9%. What is the present value savings that would be earned if your firm makes the payment on the last day of the discount trade credit period versus the last day of the net trade credit period?
a. $341.84
b. $3,983.63
c. $1,506.76
d. $689.92