Vegit Corporation Needs to Borrow Funds to Support Operations During

Multiple Choice

Vegit Corporation needs to borrow funds to support operations during the summer.Vegit's CFO is trying to decide whether to borrow from Fruit Bank or Vegetable Bank.The loan offered by Fruit Bank has a 12.5 percent simple interest rate with annual interest payments, whereas the loan offered by Vegetable National Bank has a 12 percent simple interest rate with monthly payments.Which bank should Vegit use for the loan?

A) Vegetable Bank, because the 12 percent simple interest is cheaper than the 12.5 percent simple interest at Fruit Bank.
B) Vegetable Bank, because the effective interest rate on the loan is less than 12 percent, whereas the effective interest rate on the loan at Fruit Bank is greater than 12.5 percent.
C) Fruit Bank, because the simple interest rate is higher, which means that Vegit will be able to invest the proceeds from the loan at a higher rate of return.
D) Fruit Bank, because the effective interest rate on the loan is 12.5 percent, which is less than the 12.7 percent effective interest rate on the loan offered by Vegetable Bank.
E) There is not enough information to answer this question.