Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q.2: The Navana Company LTD. Needs to finance its short term financing needs of tk. 4, 00,000 for six months. The company is considering the

Q.2: The Navana Company LTD. Needs to finance its short term financing needs of tk. 4, 00,000 for six months. The company is considering the following possibilities:

i) Terminal ware house loan from a finance company. The terms are 12% annualized with an 80% advanced against the value of the inventory. The warehouse costs are tk. 6,500 per month.

ii) A floating lien arrangement from the bank. The bank will maintain a 10% compensating balance. Bank will charge 15% interest rate.

iii) A factor will buy the company receivables (6, 00,000) which have a collection period of 60 days. The factor will advance up to 75% of the face value of the receivables at 10% on an annual basis. The factor will also charge a 2% fee on all receivables purchased. It has been estimated that the factor's services will save the company a credit department expenses and bad debt expense of tk. 1,500 per month.

Requirement: Which is the least costly method of financing to the firm?

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

Business Mathematics

Authors: Charles MillerStanley SalzmanStanley SalzmanGary Clendenen

11th Edition

0321500121, 9780321500120

More Books

Students also viewed these Finance questions