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Free CMA Exam Braindumps (page: 127)

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CyberAge Outlet, a relatively new store, is a cafe that offers customers the opportunity to browse the Internet or play computer games at their tables while they drink coffee. The customer pays a fee based on the amount of time spent signed on to the computer. The store also sells books, tee-shirts, and computer accessories. CyberAge has been paying all of its bills on the last day of the payment period, thus forfeiting all supplier discounts. Shown below are data on CyberAge's two major vendors, including average monthly purchases and credit terms.

  1. 11%
  2. 10%
  3. 12.09%
  4. 9.90%

Answer(s): C

Explanation:

The interest at 11% annually on a 30-day loan of $64,615 is $592.30 [$64,615 x 11% x (30 ÷ 360)). However, the company has access to only $56,800 The interest expense on usable funds is therefore at an annual rate of 12.09% [($592.30 $58,800) x 12 months).



View Related Case Study

CyberAge Outlet, a relatively new store, is a cafe that offers customers the opportunity to browse the Internet or play computer games at their tables while they drink coffee. The customer pays a fee based on the amount of time spent signed on to the computer. The store also sells books, tee-shirts, and computer accessories. CyberAge has been pang all of its bills on the last day of the payment period, thus forfeiting all supplier discounts. Shown below are data on CyberAges two major vendors, including average monthly purchases and credit terms.



If Morton fails to take the discount and pays on the 40th day, what effective rate of annual interest is it paying the vendor?

  1. 2%
  2. 24%
  3. 24.49%
  4. 36.73%

Answer(s): C

Explanation:

By failing to take the discount, the company is essentially borrowing $58,800 for 30 days. Thus, at a cost of $1,200, the company acquires the use of $58,800, resulting in a rate of 2.04081% ($1,200 ÷ $58,800) for 30 days. Assuming a 360-day year, the effective annual rate is 24.489% [2.04081% x (360 days ÷ 30 days)].



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A company has just borrowed $2 million from a bank. The stated rate of interest is 10%. If the loan is discounted and is repayable in one year, the effective rate on the is approximately

  1. 8.89%
  2. 9.09%
  3. 10.00%
  4. 11.11%

Answer(s): D

Explanation:

If the loan is discounted, the borrower receives the face amount minus the prepaid interest. Thus, the borrower will receive proceeds of $1,800,000 [$2,000,000 - ($2,000,000 x 10%)]. The effective interest rate is 11.11% ($200,000 ÷ $1,800,000).



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The following forms of short-term borrowing are available to a firm:
· Floating lien
· Factoring
· Revolving credit
· Chattel mortgages
· Bankers' acceptances
· Lines of credit
· Commercial paper
The forms of short-term borrowing that are unsecured credit are

  1. Floating lien, revolving credit, chattel mortgage, and commercial paper.
  2. Factoring, chattel mortgage, bankers' acceptances, and line of credit.
  3. Floating lien, chattel mortgage, bankers' acceptances, and line of credit.
  4. Revolving credit, bankers' acceptances, line of credit, and commercial paper

Answer(s): D

Explanation:

An unsecured loan is a loan made by a bank based on credit information about the borrower and the ability of the borrower to repay the obligation The loan is not secured by collateral, but is made on the signature of the borrower. Revolving credit, bankers' acceptances, lines of credit, and commercial paper are all unsecured means of borrowing.






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