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Below is the extract statement of financial position of Mattress Cool Son Bhd as at 31 Mattress Cool Son Bhd recently launched new mattress at selling price RM1.500 per unit. October 2017: The incremental revenue from the selling of new mattress is RM300 per unit. At present, the company sells the product on credit term and the average credit sales now is RM1,325,000 per year, The current account receivables is RM280,500 with Mattress Cool San Bhd the opportunity cost of funds invested in accounts receivable is 12%. As part of sales promotion effort, the sales department proposes to increase the credit terms Statement of Financial Position as at 31 October 2017 period to 45 days. The company receives very good response from customer and it has resulted increase in sales by 250 units and yet the bad debts also increase from NON CURRENT ASSETS RM Property, plant and equipment RM 1.2% to 1.8%. The company offers 3% discounts for early payment with less or 2.500,000 within 20 days. It is expected that 80% of the customers will take the discounts. Less: accumulated depreciation 550,000 Net non-current assets Recommend whether Mattress Cool Son Bhd should relax its credit standard. 1,950,000 (6 marks) CURRENT ASSETS Inventories Mattress Cool Son Bhd purchased latex foams from its supplier at cost RM280,000 with a 340,800 Account Receivables credit term 3/10, net 40. Mattress Cool had requested supplier to delay its payment 280,500 until to the last day of 60" day. Meanwhile Mattress Cool tried to approach few banks Cash and marketable Securities 158,700 780.000 and able to obtain two financing alternatives such as follows: 2,730.000 Palace Bank Bhd has agreed to lend enough funds but it requires 10% compensating The Finance Manager proposes two alternatives of financing strategies for the consideration balance and charged 12% interest paid in advance. Mattress Cool plans to borrow of board's member approval such as follows: for 60 day period and currently do not have any account with Palace Bank Bhd. Corporate Bank Bhd has offered line of credit for 60" day period amounted to Financing plan A: Finance all permanent assets through the issuance of bond while one RM500,000 with the interest charged at 7% and a fee for unused fund at 3% is quarter of the temporary current assets will be funded by the issuance of share capital. The payable to the lender. remaining balance will be under the short term funds from various commercial banks. Note: Assume a 360-day in a year) Financing plan B: Using short term financing for both permanent current assets and temporary current assets whilst the cash received from the issuance of debt and share Required: capital is used for funding the permanent non-current assets Calculate the effective annual cost of not taking discounts. (2 marks) Additional Information Determine the effective annual cost of the bank loan offered from both Palace Bank One third of current assets is permanent current assets. Bhd and Corporate Bank Bhd. The interest rate for long term financing and short term financing are 8% and 5% (3 marks) respectively. The earnings before interest and tax for the year ended 31 October 2017 is RM625,000. Based on comparison of effective annual cost in (1) and (il), suggest the best Company's tax rate is 24%. financing option to be adopted. (1 marks) Required: (TOTAL: 22 MARKS) Re-classify the statement of financial position as at 31 October 2017 as proposed by both financing plan A and B to indicate the classification of assets into permanent and temporary assets and its' sources of financing. (4 marks) Calculate the earnings after interest and tax for each financing plan (4 marks) Based on your answer in (a) and (b) above. discuss the risk-return trade-off for both financing strategies marks)