2B5G MANDEL INC. HAS A ZERO-BALANCE ACCOUNT WITH A COMMERCIAL BANK....
143.
CSO: 2B5b
LOS: 2B5g
Mandel Inc. has a zero-balance account with a commercial bank. The bank sweeps any
excess cash into a commercial investment account earning interest at the rate of 4% per
year, payable monthly. When Mandel has a cash deficit, a line of credit is used which
has an interest rate of 8% per year, payable monthly based on the amount used. Mandel
expects to have a $2 million cash balance on January 1 of next year. Net cash flows for
the first half of the year, excluding the effects of interest received or paid, are forecasted
(in millions of dollars) as follows.
Jan
Feb
Mar
Apr
May
Jun
Net cash inflows ($) +2
+1
-5
-3
-2
+6
Assuming all cash-flows occur at the end of each month, approximately how much
interest will Mandel incur for this period?
a.
$20,000 net interest paid.
b.
$53,000 net interest paid.
c.
$76,000 net interest paid.
d.
$195,000 net interest paid.