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You are the manager of a mobile phone manufacturer. Your firm currently holds $2,000 cash on hand. You cannot find a good investment opportunity now, so you decide to deposit all the cash into a bank's savings account. There are two banks having good relation with your firm: Bank A and Bank B. Bank A provides you 2% interest rate, quarterly compounding, on its savings account. Bank B provides you 2.5% interest rate, quarterly compounding, on its savings account. Which bank's savings account would you choose to deposit your firm's cash into? (Hint: you can calculate the true rate mathematical or explain your decision theoretical. Both method give you consistent conclusion.) PMT fv: N: Bane A Quaterly Banu B 0.25 2. o0 20l o.25 2,a00 2.5 Annualiy -Bane A Bane B 2.015% 2,da 2,o40.30 2.5240/ 2,s00 2 So.47 Since Fv wil be highe in Bane B aiso annoatized return is hizher br Ban 3. The Grm Shond invest With Bane B In addinon.. (inputs) Banu A Bank 8 NE. 25 N.25 Tolo= 2.5 Pu = 2,000 PMT O Fv=-2,012.38 Iolo2 Pu = 2.000 PMTEO Fr-2,d0.93 Your firm keeps generating $5,000 cash per quarter from the operation, and you deposit all the cash into your savings account. One year later, your Research & Development department comes up with a cutting-edge technology. Based upon this tech, you can release a new product, uPhone Max. You need to upgrade your equipment in order to produce uPhone Max. The estimated cost to upgrade is $40,000. You need to raise up the fund for the upgrade. One source is the money in your savings account. How much money do you have in your savings account now? How much money you still need to borrow from the bank in order to upgrade the equipment? (Hint: do not forget the cash you hold on hand initially.)

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