18. Carmen’s Beauty Salon has estimated monthly financing requirements for the n
ID: 2728619 • Letter: 1
Question
18. Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows: January……………….. 8,500 April………………. 8,500 February……………… 2,500 May……………….. 9,500 March………………….. 3,500 June……………….. 4,500 Short-term financing will be utilized for the next six months. Projected annual interest rates are: January……………….. 9.0% April………………. 16.0% February……………… 10.0% May……………….. 12.0% March………………….. 13.0% June……………….. 12.0% a. Compute total dollar interest payments for the six months. To convert an annual rate to a monthly rate, divide by 12. Then multiply this value times the monthly balance. To get your answer, sum up the monthly interest payments. b. If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or smaller? Compute the interest owed over the six months and compare your answer to that in part a.
Explanation / Answer
Calculation of total dollar interest payments for the six months:
Date
Borrowing
Balance Months
Annual Rate
Monthly rate
Interest
A
B
C
D=C/12
A*B*D
January
8500
6
9%
0.7500%
$ 382.50
February
2500
5
10%
0.8333%
$ 104.17
March
3500
4
13%
1.0833%
$ 151.67
April
8500
3
16%
1.3333%
$ 340.00
May
9500
2
12%
1.0000%
$ 190.00
June
4500
1
12%
1.0000%
$ 45.00
Total dollar interest payments for the six months =
$ 1,213.33
Calculation of total dollar interest payments for the six months:
Date
Borrowing
Balance Months
Annual Rate
Monthly rate
Interest
A
B
C
D=C/12
A*B*D
January
8500
6
9%
0.7500%
$ 382.50
February
2500
5
10%
0.8333%
$ 104.17
March
3500
4
13%
1.0833%
$ 151.67
April
8500
3
16%
1.3333%
$ 340.00
May
9500
2
12%
1.0000%
$ 190.00
June
4500
1
12%
1.0000%
$ 45.00
Total dollar interest payments for the six months =
$ 1,213.33
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