Interest and 90-day Bank Loan

Category: Bank, Banking, Money
Last Updated: 18 Apr 2023
Pages: 2 Views: 361

Accounts receivable changes with bad debts A firm is evaluating accounts receivable change that would increase bad debts from 2% to 4% of sales. Sales are currently 50,000 units, the selling price is $20 per unit, and the variable cost per unit is $15. As a result of the proposed change, sales are forecast to increase to 60,000 units.

  • a. What are bad debts in dollars currently and under the proposed change?
  • Order custom essay Interest and 90-day Bank Loan with free plagiarism report

    feat icon 450+ experts on 30 subjects feat icon Starting from 3 hours delivery
    Get Essay Help
  • b. Calculate the cost of the marginal bad debts to the firm.
  • c. Ignoring the additional profit contribution from increased sales, if the proposed change saves $3,500 and causes no change in the average investment in accounts receivable, would you recommend it? Explain.
  • d. Considering all changes in costs and benefits, would you recommend the proposed change? Explain.
  • e. Compare and discuss your answers in parts c and d.


Zero-balance account Union Company is considering the establishment of a zero balance account. The firm currently maintains an average balance of $420,000 in its disbursement account. As compensation to the bank for maintaining the zero balance account, the firm will have to pay a monthly fee of $1,000 and maintain a $300,000 non–interest-earning deposit in the bank. The firm currently has no other deposits in the bank. Evaluate the proposed zero-balance account, and make a recommendation to the firm, assuming that it has a 12% opportunity cost.


Cost of bank loan Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year).

  • a. How much interest (in dollars) will the firm pay on the 90-day loan?
  • b. Find the effective 90-day rate on the loan.
  • c. Annualize your result in part b to find the effective annual rate for this loan, assuming that it is rolled over every 90 days throughout the year under the same terms and circumstances.

Cite this Page

Interest and 90-day Bank Loan. (2017, May 08). Retrieved from

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

plagiarism ruin image

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer