Answered step by step
Verified Expert Solution
Question
1 Approved Answer
b) IKIDA Plantation urgently needs additional RM300,000 for its working capital financing. Three sources are available for this company. i) Determine the Effective Interest Rate
b) IKIDA Plantation urgently needs additional RM300,000 for its working capital financing. Three sources are available for this company. i) Determine the Effective Interest Rate (EIR) for each of the financing alternative: Alternative 1 Issuing commercial paper, which has the following financial information: - Maturity: 180 days - Face value of RM50,000 per paper with 10 percent interest - Issuing cost per paper: RM1,500 Alternative 2 Use a revolving credit line for 9 months given by MNC Bank. The agreement enables the company to borrow up to RM500,000 at 9 percent interest. The company is also required to maintain a 10 percent compensating balance and pay 5 percent commitment fee on the unused portion of the credit line. Alternative 3 Take a 12 percent simple interest loan offered by CW Bank for 12 months. A compensating balance of 20 percent is required by the bank. ii) Identify the best financing alternative for IKIDA Plantation
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started