Vegit Corporation Needs to Borrow Funds to Support Operations During

question 63

Multiple Choice

Vegit Corporation needs to borrow funds to support operations during the summer.Vegit's CFO is trying to decide whether to borrow from the Bank of Florida or the Bank of Georgia.The loan offered by Bank of Florida has a 12.5 percent simple interest rate with annual interest payments, whereas the loan offered by the Bank of Georgia has a 12 percent simple interest rate with monthly payments.Which bank should Vegit use for the loan?

• A)Bank of Georgia, because the 12 percent simple interest is cheaper than the 12.5 percent simple interest at Bank of Florida.
• B)Bank of Georgia, because the effective interest rate on the loan is less than 12 percent, whereas the effective interest rate on the loan at the Bank of Florida is greater than 12.5 percent.
• C)Bank of Florida, because the simple interest rate is higher, which means that Vegit will be able to invest the proceeds from the loan at a higher rate of return.
• D)Bank of Florida, because the effective interest rate on the loan is 12.5 percent, which is less than the 12.7 percent effective interest rate on the loan offered by the Bank of Georgia.
• E)There is not enough information to answer this question.

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