Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 3: 4DQ (page 247)

What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?

Short Answer

Expert verified

The prime interest rate is offered by the bank to the customers having the highest credit rating. The interest rate offered to the average customers is 1-2% higher than the prime interest rate.

Step by step solution

01

Meaning of prime interest rate

The prime interest rate is the interest rate offered by the bank to its customer that has the highest credit rating. These rates are lower than the bank’s average interest rate as the chances of default are low in this case.

02

The interest rate of an average customer in regard to the prime rate

The interest rate charged by the bank of an average customer is 1-2% higher than the prime interest rate offered by the bank. The prime rate is usually offered to large corporations.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Lear Inc. has \(840,000 in current assets, \)370,000 of which are considered permanent current assets. In addition, the firm has \(640,000 invested in fixed assets.

a. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 8 percent. The balance will be financed with short-term financing, which currently costs 7 percent. Lear’s earnings before interest and taxes are \)240,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent.

Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.

a. What is the level of accounts receivable to support this sales expansion?

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%

Guardian Inc. is trying to develop an asset financing plan. The firm has \(400,000 in temporary current assets and \)300,000 in permanent current assets. Guardian also has \(500,000 in fixed assets. Assume a tax rate of 40 percent.

b. Given that Guardian’s earnings before interest and taxes are \)200,000, calculate earnings after taxes for each of your alternatives.

Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.

e. Given the income determined in part b and the investment determined in part d, should Henderson extend more liberal credit terms?
See all solutions

Recommended explanations on Business Studies Textbooks

Nature of Business

Read Explanation

Introduction to Business

Read Explanation

Managers

Read Explanation

Business Data Analytics

Read Explanation

Financial Performance

Read Explanation

Finance Literacy (Business Studies)

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free