A firm establishes a line of credit for $1,000,000 from bank A at 7% and pays an origination fee of 1%. Or the firm may have a line of credit for $1,000,000 from bank B at 8% discounted in advance. Which loan has a higher annualized (compound) interest rate if the firm borrows the entire $1,000,000 a year?

• Bank A

• Bank B

What is the impact given the following? Put a + if the direction is positive; a - if the direction is negative, and leave blank or DC if there is no impact. You may also use arrows.

Inventory is written off as obsolete. What is the impact on

return on equity

lease expense

A firm sells its accounts receivable at a discount to raise cash. What is the impact on

return on assets

depreciation expense

A firm issues subordinated debentures. What is the impact on

quick ratio

operating income

Management is considering changing credit terms. Currently the terms are n30 and the new terms will be 2/10, n30. What should happen to the firms days sales outstanding? Why?