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:

Independent Arrival

The concept in queueing theory where the arrival of customers or entities is not influenced by previous arrivals.

Large Population

Refers to a substantial number of units or individuals within a specified area or group, often used in statistical analysis and sampling.

M/M/1 Assumptions

Assumptions used in queuing theory where there is a single server, arrivals are Markovian (Poisson process), service times are exponentially distributed, and there is an unlimited queue.

Average Number

A mathematics term referring to the sum of a list of numbers divided by the count of numbers in the list.