You are considering to purchase an apartment in your city costing Tk. 50,00,000. You have three offers:
(i) Pay full in cash.
(ii) Pay 25% of the cost in cash immediately and pay Tk. 6,60,000 each year for the next 10 years.
(iii) Pay 50% of the cost in cash and take a loan of Tk. 25,00,000 from BHBFC at 15% interest to be paid in equal monthly installment over the next 20 years.
Assume 12% opportunity cost, which offer you should accept?
ACI Ltd. requires working capital of Tk. 10,00,000. There are two alternatives:
(i) Bank loan Mutual Trust Bank is interested to grant Tk. 10,00,000 as a loan @ 12% per annum for 6 month after reduction of 5% as compensating balance.
(ii) Commercial paper: To issue commercial paper at 12%. The cost of issuing would be Tk. 20,000 in each quarter.
Requirements:
(a) Calculate the effective interest rate of first alternative.
(b) Which alternative should the company and why?