9BP
Expert-verifiedSauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $150,000. The company can borrow $150,000 for three years at 10 percent annual interest or for one year at 8 percent annual interest.
How much would Sauer Food Company save in interest over the three-year life of the computer system if the one-year loan is utilized and the loan is rolled over (reborrowed) each year at the same 8 percent rate? Compare this to the 10 percent three-year loan. What if interest rates on the 8 percent loan go up to 13 percent in year 2 and 18 percent in year 3? What would be the total interest cost compared to the 10 percent, three-year loan?
The interest saving when a one-year loan is reborrowed in place of the three-year loan is $9,000. The extra cost of financing will be $13,500 when the organization reborrows the one-year loan instead of using the three-year loan.
The following information is provided:
Cost of computer system = $150,000
Expected life = 3 years
Interest for three years = 10%
Interest for the first year = 8%
Interest for the second year = 13%
Interest for the third year = 18%
The expected sales for next year are $36,000.
The expected sales for next year are $45,000.
The interest savings when short-term financing is utilized is $9,000.
The cost of borrowing is $58,500.
The extra cost of a short-term loan when the rates are changing is $13,500.
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
a. Fill in column (4) for each month.
Age of receivables April 30 20X1 | |||
1 | 2 | 3 | 4 |
Month of sales | Age of accounts | Amounts | Percent of amount due |
April | 0-30 | $131,250 | ____ |
March | 31-60 | $93,750 | ____ |
February | 61-90 | $112,500 | ____ |
January | 91-120 | $37,500 | ____ |
Total receivables |
| $375,000 | 100% |
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