Similarly to the Gilbert Lumber Company case, suppose today is January 1, 2020 and your company, Maschera Corp. has a loan with an APR of 18% whose principal is reduced by $4,000 on the last day of every month. The balance outstanding on this loan on December 31, 2019 (i.e., yesterday) was $389,000. Find the TOTAL amount of interest that Maschera will pay over the next calendar year; that is, over the next 12 months. (Acceptable error = $200)
Carefully note that, as stated, the principal payments on the loan occur on the last day of each month. Thus, for example, during the entire month of January, the balance outstanding of the loan is equal to the balance that loan had on December 31.
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Answer:
Rapid Growth In Its Business During Recent Years, The Butler Lumber Company In The Spring Of 2011 Anticipated A Further Substantial Increase In Sales. Despite Good Profits, The Company Had Experienced A Shortage Of Cash And Had Found It Necessary To Increase Its Borrowing From The Suburban National Bank To ...
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Case 13–6: Butler Lumber Company*
After a rapid growth in its business during recent years, the Butler Lumber Company in the spring of 2011 anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the Suburban National Bank to $247,000 in the spring of 2011. The maximum loan that Suburban National would make to any one borrower was $250,000, and Butler had been able to stay within this limit only by relying very heavily on trade credit. In addition, Suburban was now asking that Butler secure the loan with its real property. Mark Butler, sole owner and president of the Butler Lumber Company, was therefore looking elsewhere for a new banking relationship where he would be able to negotiate a larger and unsecured loan.
Butler had recently been introduced by a friend to George Dodge, an officer of a much larger bank, the Northrop National Bank. The two men had tentatively discussed the possibility that the Northrop Bank might extend a line of credit to Butler Lumber up to a maximum amount of $465,000. Butler thought that a loan of this size would more than meet his foreseeable needs, but he was eager for the flexibility that a line of credit of this size would provide. After this