Question
A company has an overdraft limit of $110,000 and has the following overdraft account balance over a 6 month period. January February March April June
A company has an overdraft limit of $110,000 and has the following overdraft account balance over a 6 month period.
| January | February | March | April | June | July |
| -$98,000 | -$104,000 | -$104,000 | -$102,000 | -$108,000 | -$108,000 |
The bank contacts the company and expresses concern that the accounts is constantly overdrawn. It recommends reducing the overdraft limit and taking out a fully-drawn advance. What do you think the value of the fully-drawn advance should be, in order to ensure that the overdraft is only used to assist with the variable component of the firm's funding requirements?
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Investment Analysis and Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
10th Edition
978-0538482387
