Boatler Used Cadillac Co. requires \$800,000 in financing over the next two years. The firm can borrow the funds for two years at 9 percent interest per year. Mr. Boatler decides to do forecasting and predicts that if he utilizes short-term financing instead, he will pay 6.75 percent interest in the first year and 10.55 percent interest in the second year. Determine the total two-year interest cost under each plan. Which plan is less costly?

Explanation:

Amount required   800000

Plan-1   9% per Annum

Year -1 800000 9% 72000

Year -2 800000 9% 72000

Total interest  144000

Plan-2

Year -1 800000 6.75% 54000

Year -2 800000 10.55% 84400

Total interest  138400

Interset cost

Plan-1   144000

Plan-2   138400

Plan 2 is more benificial because interest cost is lesser than plan-1

Plan1=\$144000 Plan2= \$138400

Plan two is  lower than plan 1 interest so it is the better plan

Explanation:

First option

\$800000×0.09 =72000

So for two years

\$72000×2=\$144000

Second option

first year

800000×0.0675=\$54000

second year

800000×0.1055=\$84400

\$54000+\$84400

=\$138400

Plan two is  lower than plan 1 interest so it is the better plan

Related Questions

A borrower signs the note and mortgage for a re-finance on his principal residence on Thursday, Dec. 31. What is the earliest day the funds for this loan could be disbursed (assuming no bona fide financial hardship)?

Answer: The earliest the funds could be disbursed would be Wednesday the 6th.

Explanation:

Federal holidays and Sundays are not counted when considering the 3business days rescission period for loans principal residences. The borrower has the opportunity till midnight on these 3 business days after landing papers are signed, the days are Saturday, Monday and Tuesday. With this consideration's, the earliest the funds could be disbursed would be Wednesday the 6th.

On January​ 1, 2018, Westside Sales issued \$ 20 comma 000 in bonds for \$ 21 comma 800. These are eightminusyear bonds with a stated interest rate of 10​% that pay semiannual interest. Westside Sales uses the straightminusline method to amortize the bond premium. After the first interest payment on June​ 30, 2018, what is the bond carrying​ amount? (Round your intermediate answers to the nearest​ dollar.)

\$21,687.5

Explanation:

Premium on bonds payable = \$21,800 - \$20,000= \$1,800

Interest payments = 8 years X 2 semiannual interest payments per year  = 16 payments

Premium ammortisation = \$1,800 / 16  = \$112.5

Carrying value of the bond = \$21,800 - \$112.5   = \$21,687.5

A. If Canace Company, with a break-even point at \$259,000 of sales, has actual sales of \$350,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?Round the percentage to the nearest whole number.1. \$
2. %

Margin of safety in dollars is \$91,000

Margin of safety as percentage of sales is 26%

Explanation:

Margin of safety can be defined as the amount of output or sales that a business can make before it reaches its breakeven point.

To calculate margin of safety in dollars

Margin of safety= Sales - Breakeven sales

Margin of safety= 350,000- 259,000

Margin of safety= \$91,000

To calculate margin of safety as a percentage of sales, we use the following formula.

Margin of safety = (Sales- Breakeven point) ÷ Sales

Margin of safety = (350,000- 259,000)÷ 350,000

Margin of safety= 0.26= 26%

1. Margin of Safety(MOS) expressed in dollars =91,000

2. Margin of Safety(MOS) expressed as percentage = 26% (to the nearest whole number)

Explanation:

The MARGIN OF SAFETY is applied as a measure of the difference between the actual sales and break-even sales.

In other words, to find Margin of Safety, you subtract break-even sales from the actual sales.

MOS is used to determine at which level sales can drop before a business incurs losses. It is a tool by which actual or budgeted sales may be decreased without resulting in any loss.

1. Formula for Margin of Safety(in dollars):

Margin of Safety(in dollars) = Actual/Budgeted Sales ➖ Break-even Sales

Where:

Actual Sales = \$350,000

Break-even Sales = \$259,000

➡ Margin of Safety(in dollars) = \$350,000 ➖ \$259,000 = 91,000(ans)

2. Formula for Margin of Safety (expressed as a percentage) = [(Actual/Budgeted Sales ➖ Break-even Sales) ➗ Actual/Budgeted Sales] ✖ 100%

Where:

Actual Sales = \$350,000

Break-even Sales = \$259,000

➡ Margin of Safety (in percentage) = [(\$350,000 ➖ \$259,000) ➗ \$350,000] ✖ 100%

= (\$91,000 ➗ \$350,000) ✖ 100%

= 0.26 ✖ 100% = 26%(ans).

Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and \$100,000 in debt. Plan II would result in 8,700 shares of stock and \$155,000 in debt. The interest rate on the debt is 5 percent. Compare both of these plans to an all-equity plan assuming that EBIT will be \$80,000. The all-equity plan would result in 18,000 shares of stock outstanding. Assuming that the corporate tax rate is 40 percent, what is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.)

Please find attached detailed solution to the above question.

Explanation:

Many people have argued that the skills needed to be successful in today's workforce have changed. What skills do you feel an individual needs to be successful in a job today? Why do you feel these skills are most important? In an essay to be read by your instructor, identify the skills you feel are most needed by an individual to be successful at work and provide reasons to persuade your instructor that these are the most critical skills for success.

Technical skills are really essential. But upon technical skill, soft skills are mandatory to have a successful career.

Explanation:

Communication: The most important to covey from low level to high level and vice-versa.

Leadership skill: The see the growth visibly. An essential skill for both employer and employee.

Crisis management: Employee should possess this skill to handle challenging situation

Negotiation: Which is really important both for work life and personal life. This is required in all the levels of hierarchy.

Collaboration: Required to work as a team

Problem-solving: The skill which would be tested in various interviews in all the levels.

Suppose that on August 14, 2019, an antique woven rug handmade in Canada is priced at CAD 1,100. The approximate U.S. dollar price of the rug would be

USD 825.95

Explanation:

Step one:

To tackle this problem we need data from historical chart.

From historical chart, on August 14, 2019, 1 USD  is equivalent to CAD 1.3318

Step two:

From the historical data we need to perform conversion on the data to get the USD equivalent of the CAD given in the problem

Hence

if 1 USD = CAD 1.3318  then