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In Problem 18, what long-term interest rate would represent a break-even point between using short-term financing as described in part a and long-term financing? (Hint: Divide the interest payments in 18a by the amount of total funds provided for the six months and multiply by 12.)

Short Answer

Expert verified

The monthly interest rate will be 1.014%, and 12.17% will be the annual interest rate.

Step by step solution

01

Interest payments

January

$8,500

February

$2,500

March

$3,500

April

$8,500

May

$9,500

June

$4,500

02

Calculation of break-even point

The break-even point will be 1.014% monthly rate and 12.17% annual rate.

Break-evenpoint=InterestPrinciple=$373.35$37,000=1.014%

AnnualInterestRate=Monthlyinterestrate×12=1.014%×12=12.17%

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