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

At the end of 2011 home depots total capitalization

At the end of 2011 Home Depot's total capitalization amounted to $28,992 million. In 2012 debt investors received interest income of $635 million. Net income to shareholders was $4,526 million. (Assume a tax rate of 35%. ...

Program a has a profit of 5000 and an investment of 100000

Program A has a profit of $5,000 and an investment of $100,000, while program B has a profit of $10,000 and an investment of $220,000. Which program has the better ROI?

Assignment cash managementsolve the following problem

Assignment: Cash Management Solve the following problem. Norma's Cat Food of Shell Knob ships cat food throughout the country. Norma has determined that through the establishment of local collection centers around the co ...

Linda from problem 44 is now 18 years old five years have

Linda (from problem 44) is now 18 years old (five years have passed), and she wants to get married instead of going to school. Your parents have accumulated the necessary funds for her education. Instead of her schooling ...

The components of the djia have changed 51 times since its

The components of the DJIA have changed 51 times since its beginning in May 26, 1896. Numerous companies were added and deleted over this time. So other than failure, bankruptcy, or simply being renamed, pick a company t ...

What are the advantages of fixed exchange rateswhat are the

What are the advantages of fixed exchange rates? What are the disadvantages? Does it matter if the country is large or small?

Meyer amp co expects its ebit to be 75000 every year

Meyer & Co. expects its EBIT to be $75,000 every year forever. The firm can borrow at 12 percent. Meyer currently has no debt, and its cost of equity is 15 percent and the tax rate is 35 percent. The company borrows $152 ...

The account balance on april 1st is 5051 on april 15th a

The account balance on April 1st is $50.51. On April 15th a payment of $15.00 is made. On April 25th a purchase of $19.27 is made. The annual rate is 18%. What is the finance charge using the previous balance method? Wha ...

Impact of the economy explain how the expected interest

Impact of the Economy : Explain how the expected interest rate in one year depends on your expectation of economic growth and inflation.

The department of employment and training estimated the

The department of Employment and training estimated the following model of labour force participation in 2001 using census data on 49 local government areas in Queensland. The median annual earnings of full-time workers ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate