Spontaneous sources of funds, accruals When Tallman Haberdashery, Inc., merged with Meyers Men’s Suits, Inc., Tallman’s employees were switched from a weekly to a bi weekly pay period. Tallman’s weekly payroll amounted to $750,000. The cost of funds for the combined firms is 11%. What annual savings, if any, are realized by this change of pay period? 15–8 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 360 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.