Hammond Motors Is Considering Using a Public Warehouse Loan as Part

question 22

Multiple Choice

Hammond Motors is considering using a public warehouse loan as part of its short-term financing.The firm will require a loan of $2 million for three months.Interest on the loan will be 12% (APR,compounded quarterly) to be paid at the end of the quarter.The warehouse charges 1% of the face value of the loan,payable at the beginning of the quarter.The effect annual rate on this loan is closest to:

• A)9.3%
• B)11.3%
• C)15.2%
• D)17.1%

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Definitions:

Cash Receipts

The total amount of money received by a business or organization during a specific period, often documented for accounting purposes.

Cash Management

The practice of managing a company's or individual's cash flow and investments to optimize liquidity and make effective use of cash reserves.

Rational Purchaser

An economic concept describing a consumer who makes buying decisions based on thorough analysis to maximize utility.

Creditworthiness

An assessment of a borrower's ability to repay debts based on their financial history and current financial status.