Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

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

Bethesda mining company reports the following balance sheet

Bethesda Mining Company reports the following balance sheet information for 2015 and 2016. BETHESDA MINING COMPANY Balance Sheets as of December 31, 2015 and 2016 2015 2016 2015 2016 Assets Liabilities and Owners' Equity ...

The following information was available spot rate for

The following information was available: Spot rate for Japanese yen: $0.009313 730-day forward rate for Japanese yen: $0.010475 (assume a 365-day year) U.S. risk-free rate: 7.0 percent Japanese risk-free rate: 1.0 percen ...

1 why are most corporate bonds callable who benefits from

1. Why are most corporate bonds callable? Who benefits from this feature, and what is the cost of adopting a call provision in a public bond issue? 2. Why do corporations have their debt rated? Compare the role played by ...

1 what are the advantages and disadvantages of usinga

1. What are the advantages and disadvantages of using (a) figures, (b) tables, and (c) text to report the results of experiments in the research report? 2. Differentiate between random sampling and random assignment. Whi ...

A certain loop requires 5 loads 7 stores and 8 arithmetic

A certain loop requires 5 loads, 7 stores, and 8 arithmetic operations. What is the minimum initiation interval for a software pipelining of this loop on a machine that executes each operation in one clock tick, and has ...

Use the is-mp model including the output gap phillips curve

Use the IS-MP model (including the output gap Phillips curve) to analyze how the Federal Reserve would respond to a significant positive demand shock. Assume that the economy was in long-run macroeconomic equilibrium bef ...

1 what are the advantages and disadvantages of usinga

1. What are the advantages and disadvantages of using (a) figures, (b) tables, and (c) text to report the results of experiments in the research report? 2. Differentiate between random sampling and random assignment. Whi ...

El dorado storage has the following projections for year 1

El Dorado Storage has the following projections for Year 1 of a capital budgeting project. Sales: $128,226 Fixed costs and selling, general and administrative expenses $12,951 Depreciation Expense $26,260 Tax Rate 35% Ca ...

Wfm current dividend per share is 107 you expect dividends

Wfm current dividend per share is $1.07. You expect dividends to grow at 5% per year into perpetuity. Wfm beta is .85. The current risk free rate is 2.9%, and the expected return on the market portfolio is 7.4%. Use the ...

What distinguishes investment management from financial

What distinguishes investment management from financial management? What is the role of a discount rate in decision-making? What is the responsibility of the investment manager with respect to the investment portfolio? D ...

  • 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