Use the Following Information to Answer the Question(s)below

question 23

Multiple Choice

Use the following information to answer the question(s) below.
Taggart Transcontinental needs a $100,000 loan for the next 30 days.Taggart has three alternatives available:
Alternative #1: Forgo the discount on its trade credit agreement that offers terms of 2/5 net 35.
Alternative #2: Borrow the money from Bank A,which has offered to lend the firm $100,000 for one month at
an APR of 9%.The bank will require a (no-interest) compensating balance of 10% of the face-value of the loan and will charge a $200 loan origination fee,which means that Taggart must borrow even more than the $100,000 they need.
Alternative #3: Borrow the money from Bank B,which has offered to lend the firm $100,000 for one month at an APR of 12%.The loan has a 1% origination fee.
-Which alternative should Taggart choose?

• A)Alternative #1 since it has the lowest EAR
• B)Alternative #2 since it has the lowest EAR
• C)Alternative #3 since it has the lowest EAR
• D)Alternative #2 since it has the highest actual rate

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Definitions:

Statute of Frauds

a legal principle that requires certain types of contracts to be executed in writing and signed by the party to be charged, for the purpose of preventing fraud.

Interests in Land

Legal rights or claims to the use, ownership, or possession of real estate or property.

Statute of Frauds

A legal doctrine requiring certain contracts to be in writing and signed by the party to be charged, to prevent fraud and perjuries.

Written Contract

is a legally binding agreement that has been expressed in textual form, detailing the terms and conditions between parties.