S 200,000 10 Need to Borrow 11 Line of Credit 12 Compensating Balance Required 13 Quoted Rate 14 S 500,000 25% 9% 16 A/R 17 Factoring discount 18 Credit Sales Your company needs S200,000 cash and you are trying to figure out a cheaper source of cash. Currently, you have a $500,000 line of credit with a 25% compensating balance requirem ent and annual interest rate of 9%. You also have $204,000 in account receivable, which you can factor at 2%. Your credit annual sales are S 1,200,000. S 204,000 2% 1,200,000 a). What is your effective borrowing interest rate? b). What is the effective rate of interest from factoring? c). How should you get the cash you need? 20 21 a) What is your effective borowing interest rate? 23 Borrowed amount 24 Borrowing rate 25 Direct calculation 26 27 28 b). What is the effective rate of interest from factoring? 29 30 Receivables tumover 31 Days Sales Outstanding 32 Effective Annual Rate 34 c). How should you get the cash you need? 35 36 37