Steaks Galore Needs to Arrange Financing for Its Expansion Program

question 7

Multiple Choice

Steaks Galore needs to arrange financing for its expansion program.One bank offers to lend the required $1,000,000 on a loan which requires interest to be paid at the end of each quarter.The quoted rate is 10 percent,and the principal must be repaid at the end of the year.A second lender offers 9 percent,daily compounding (365-day year) ,with interest and principal due at the end of the year.What is the difference in the effective annual rates (EFF%) charged by the two banks?

• A) 0.31%
• B) 0.53%
• C) 0.75%
• D) 0.96%
• E) 1.25%

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

Net Sales

The revenues from a company's primary activities after deducting returns, allowances, and discounts.

Working Capital Ratio

A financial metric measuring a company's ability to cover its short-term liabilities with its short-term assets.

Accounts Receivable

Money owed to a company by its customers for goods or services that have been delivered but not yet paid for.