Question
a) Asia City Ltd needs an additional fund of RM250.000 to finance its short-term project. The project will take 8 months to be completed. The
a) Asia City Ltd needs an additional fund of RM250.000 to finance its short-term project. The project will take 8 months to be completed. The company has the following alternatives to choose from:
i) Foregoing trade credit with the term of 5/20 net 90. (Use 360-day year). (2 marks)
ii) Issue commercial paper at an interest rate of 10% per annum. The placement fee is RM4,000 per paper and the face value of each paper is RM50,000. (4 marks)
iii) Loan from Kiko Bank charging 12% per annum on a discounted basis and requiring a compensating balance of 15% of the loan. The company normally maintains RM 17,500 in its account. (4 marks)
iv) Which one is the best alternative? Why? (2 marks)
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