Short Term Financing

Problem #1

The AB and company needs to increase its working capital by Rs400,000 and for this purpose company borrows money at 10 % annul rate for 120 days and bank requires 8% p.a compensating balance( for service provided, or loan backup)etc.

Required:

Calculate actual cost of this short term loan in term of percentage with discount interest method.

Problem #2

The XY and company needs to increase its working capital by Rs600,000 and for this purpose company borrow money at 12 % annual rate and bank requires 8% p.a compensating balance( for service provided, or loan backup)etc.

Required:

Calculate actual cost this short term loan in term of percentage by Discount interest method and without discount interest method.

Problem # 3

The Barnes Corporation has just acquired a large account. As a result, it will soon need an additional $95,000 in working capital.

The Following option is available for the Barnes Corporation.

Factoring: A factor will buy the company's receivables ($150,000 per month), which have an average collection period of 30 days. The factor will advance up to 75 percent of the face value of the receivables at 12 percent on an annual basis. The factor also will charge a 2 percent fee on all receivables purchased. It has been estimated that the factor's services will save the company $2,500 per month - consisting of both credit department expenses and bad-debts expenses.

Required:Calculate the cost of Factoring of A/R