Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mr. Abdul Akkas Mian, the finance manager of 'Motahar Textile Company, is contemplating about the most viable way of mobilising funds that have been necessitated

image text in transcribed
Mr. Abdul Akkas Mian, the finance manager of 'Motahar Textile Company," is contemplating about the most viable way of mobilising funds that have been necessitated by a recent order from a buyer. The required funds amount to Tk. 500 thousand and the money will be needed for a period of six months. Mr. Akkas Mian is particularly eager about the venture because successful completion of this order would mean continued business relationship with this big buyer. He is therefore looking into the possible sources of funding. After going through its purchase records, Akkas finds out that purchase contracts with two of its suppliers can enable the company to manage the required financing. The first of these suppliers, MS Kuddus Yarn Suppliers offers terms 3/15 net 60 and its sales made to Motahar textile is approximately Tk. 800 thousand per year. The other supplier MS Mukaddis Dyers, sells approximately Tk.650,000 worth dye to Motahar on terms 2/20 net 60 . However, because of its excess capacity, Mukaddis is agreeable to extend the credit period by another 30 days. Before choosing from among the two suppliers, Akkas decides to talk to Abdul Wahab the chief financial officer of Pirelli Bank to see if the funds could be borrowed at a cheaper rate. Mr. Wahab tells Akkas that the money could be lent to Motahar Textile up to Tk. 750,000 for six months with renewal for another six months at an annual interest rate of 22 percent and a compensating balance requirement of 15 percent. Putting these information on the table, Mr. Akkas starts to analyse them to finalise which of the three sources would be the most viable based on the cost of borrowing. Which option should Mr. Akkas choose for managing the short-term funding? Justify your answer with necessary calculations

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Post Crisis Financial Modelling

Authors: Emmanuel Haven, Philip Molyneux, John Wilson, Sergei Fedotov, Meryem Duygun

1st Edition

1137494484, 978-1137494481

More Books

Students also viewed these Finance questions