Mphela Electronics Needs to Arrange Financing for Its Expansion Program

question 6

Multiple Choice

Mphela Electronics needs to arrange financing for its expansion program.Bank A offers to lend Mphela the required funds on a loan where interest must be paid monthly, and the quoted rate is 8 percent.Bank B will charge 9 percent, with interest due at the end of the year.What is the difference in the effective annual rates charged by the two banks?

• A) 0.25%
• B) 0.50%
• C) 0.70%
• D) 1.00%
• E) 1.25%

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Definitions:

Arbitrary Value

An arbitrary value is a value assigned based on discretion or judgment rather than from an objective calculation or measurement.

Project Measurement

The process of quantifying the performance and progress of a project against predefined benchmarks.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, representing the annual return rate that makes the net present value of cash flows from a potential investment equal to zero.

Capital Budgeting

The process businesses use to evaluate and select long-term investments that are expected to yield the most beneficial returns.