Financial Managment

(Cost of accounts receivable) The Michelin Warehousing and Transportation Company (WTC) needs $266,000 to finance an anticipated expansion in receivables due to increased sales. WTC's credit terms are net 60, and its average monthly credit sales are $190,000. In general, the firm's customers pay within the credit period, thus, the firm's average accounts-receivable balance is $380,000. Chuck Idol , WTC's comptroller, approached the firm's bank with a request for a loan for the $266,000 using the firm's accounts receivable as collateral. The bank offered to make a loan at a rate of 3 percent over prime plus a 2 percent processing charge on all receivables pledged ($190,000 per month). Furthermore, the bank agreed to lend up to 70 percent of the face value of the receivables pledged. Note: The firm will finance its expansion in working capital for a full year. a. Estimate the cost of the receivables loan to WTC when the firm borrows the $266,000 The prime rate is currently 11 percent b.Idol also requested a line of credit for $266,000 from the bank. The bank agreed to grant the necessary line of credit at a rate of 4 percent over prime and required a 15 percent compensating balance WTC currently maintains an average demand deposit of $53,200 Estimate the cost of the line of credit to WTC c. Which source of credit should the firm select? a. The cost of the receivables loan to WTC is % (Round to two decimal places.) Enter your answer in the answer box and then click Check Answer. 2 parts Clear All remaining Check