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2. Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has suggested obtaining funds for a period of 6 months to improve

 

2. Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has suggested obtaining funds for a period of 6 months to improve the situation. The following short-term sources of financing are available: i. ii. Borrow from Bank Rimau with charges of 9.5 percent annual interest and the loan are discounted. Accept a loan from Berjaya Ltd. and the charge is at a discount rate of 9 percent. Hence, Berjaya requires a compensating balance of 11 percent. iii. Acquire line of credit from CLSA Securities (M) Sdn Bhd with an amount of RM400,000. The finance company charges at a 10.5 percent simple interest. In addition, the finance company charges a commitment fee of 5 percent on the unused fund. iv. Based on the information above, calculate the effective cost for each alternative and choose the best sources of financing with a reason.

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