Ask Question, Ask an Expert


Ask Basic Finance Expert

1) Springer Products wishes to borrow $80,000 from a local bank using its accounts receivable to secure the loan. The banks policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customers average payment period. Springers accounts receivable, their average ages, and the average payment period for each customerare shown in the following table. The company extends terms of net 30 days.

Customer/ Account Rec/ average age of acct/ average pymt period of customer

A $20,000 10 days 40 days
B 6,000 40 35
C 22,000 62 50
D 11,000 68 65
E 2,000 14 30
F 12,000 38 50
G 27,000 55 60
H 19,000 20 35

a. find out the dollar amount of acceptable accounts receivable collateral held by Springer Products.
b. The bank reduces collateral by 10% for returns and allowances. What is the level of acceptable collateral under this condition?
c. The bank will advance 75% against the firms acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?

2) Raymond Manufacturing faces a liquidity crisisâ?"it needs a loan of $100,000 for 1 month. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firm's accounts receivable are quite low, but its inventory is considered liquid and reasonably good collateral. The book value of the inventory is $300,000, of which $120,000 is finished goods. (Note: Assume a 365-day year.)

(1) City-Wide Bank will make a $100,000 trust receipt loan against the finished goods inventory. The annual interest rate on the loan is 12% on the outstanding loan balance plus a 0.25% administration fee levied against the $100,000 initial loan amount. Because it will be liquidated as inventory is sold, the average amount owed over the month is expected to be $75,000.

(2) Sun State Bank will lend $100,000 against a floating lien on the book value of inventory for the 1-month period at an annual interest rate of 13%.

(3) Citizens' Bank and Trust will lend $100,000 against a warehouse receipt on the finished goods inventory and charge 15% annual interest on the outstanding loan balance. A 0.5% warehousing fee will be levied against the average amount borrowed. Because the loan will be liquidated as inventory is sold, the average loan balance is expected to be $60,000.

a. find out the dollar cost of each of the proposed plans for obtaining an initial loan amount of $100,000.

b. Which plan do you recommend? Why?

c. If the firm had made a purchase of $100,000 for which it had been given terms of 2/10 net 30, would it increase the firm's profitability to give up the discount and not borrow as recommended in part b? Why or why not?


Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M927490

Have any Question? 

Related Questions in Basic Finance

1 what is behavioral research what are its fundamental

1. What is behavioral research? What are its fundamental goals and limitations? Why is learning about behavioral research important? 2. In what ways is behavioral research similar to and different from research in the na ...

At the first meeting of an american history class for new

At the first meeting of an American History class for new freshmen, the professor identifies 10 students who appear to be the most anxious individuals in the class. Based on their observed behaviors, the professor rates ...

1 case 1 - carolyn bowen who just turned 55 is employed as

1. Case 1 - Carolyn Bowen, who just turned 55, is employed as an administrative assistant for the Xcon Corporation, where she has worked for the past 20 years. She is in good health, lives alone, and has two grown childr ...

The rothmueller museumnbspanswer the required questions at

The Rothmueller Museum:  Answer the "Required" questions at the end of page 2.  Use the below to assist you in answering. Make sure to show all work when applicable. In 1928, Francis P. Rothmueller, a Northwest railroad ...

In addition to the key words you should also be able to

In addition to the key words, you should also be able to define the following terms: within-subjects design repeated-measures design participant attrition history maturation instrumentation testing effects statistical re ...

Wampc is examining its cash conversion cycle the company

W&C is examining its cash conversion cycle. The company expects its cost of goods sold, which equal 85% of sales, to equal $770,000 this year. W&C normally turns over inventory 25 times per year, account receivable are t ...

1 what is counterparty risk what counterparty risk is

1. What is counterparty risk? What counterparty risk is involved with forward contracts? Why are investors and firms that enter forward contracts willing to accept counterparty risk? 2. What are the key differences betwe ...

List two advantages from the investor point of view of an

List two advantages, from the investor point of view, of an exchange traded fund, vis-a-vis a closed-end fund? Distinguish between a defined benefit pension plan and a defined contribution plan? List at least three funct ...

1 why do researchers use deception2 why do some people

1. Why do researchers use deception? 2. Why do some people object to the use of deception in research? 3. What four goals should a debriefing accomplish?

Mike riskless is considering two projects he has estimated

Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investme ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro