What effective annual interest rate is being charged?
FIN534 Corporate Finance: The Core (Berk and DeMarzo)
Chapter 7: Fundamentals of Capital Budgeting
3.) Home Builder Supply, a retailer in the home improvement
industry, currently operates seven retail outlets in Georgia and
South Carolina. Management is contemplating building an eighth
retail store across town from its most successful retail outlet.
The company already owns the land for this store, which currently
has an abandoned warehouse located on it. Last month, the marketing
department spent $10,000 on market research to determine the extent
of customer demand for the new store. Now Home Builder Supply must
decide whether to build and open the new store.
Which of the following should be included as part of the
incremental earnings for the proposed new retail store?
a. The cost of the land where the store
will be located.
b. The cost of demolishing the abandoned
warehouse and clearing the lot.
c. The loss of sales in the existing
retail outlet, if customers who previously drove across town to
shop at the existing outlet become customers of the new store
d. The $10,000 in market research spent
to evaluate customer demand.
e. Construction costs for the new
f. The value of the land if sold.
g. Interest expense on the debt borrowed
to pay the construction costs.Question 1:
Ricky and Lucy have decided to refinance their home mortgage loan.
Their current home mortgage loan is for $600,000. The mortgage
interest rate is 5.75% and it is to be paid off in 30 years with
equal monthly payments. After 3 full years of payments, Ricky and
Lucy will refinance the balance at 3.0%, to be paid off in 15 years
with equal monthly payments. What will Ricky and Lucy’s new monthly
One of the largest automobile dealers in the city advertises a
4-year old car for sale as follows:
• Cash price $6599
• A down-payment of $1000 with 48 monthly payments of $179.99
Questions: A student bought the car and made a down payment of
$2000. The dealer charged her the same interest rate used in the
a) How much will the student pay each month for 48 months? Show
b) What effective annual interest rate is being charged? Show
calculations and formula. Please show me the all steps that lead to