Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 15, Problem 6SP
(Cost of secured short-term credit) The Marlow Sales and Distribution Co. needs $1.5 million for the 3-month period ending September 30, 2015. The firm has explored two possible sources of credit.
- a. Marlow has arranged with its bank for a $1.5 million loan secured by its accounts receivable. The bank has agreed to advance Marlow 75 percent of the value of its pledged receivables at a rate of 9 percent plus a 1 percent fee based on all receivables pledged. Marlow’s receivables average a total of $1.75 million year-round.
- b. An insurance company has agreed to lend the $1.5 million at a rate of 8 percent per annum, using a loan secured by Marlow’s inventory of salad oil. A field-warehouse agreement would be used, which would cost Marlow $2,000 a month. Which source of credit should Marlow select? Explain.
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(Cost of short-term bank loan) On July 1, 2018, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the
agreement call for a $120,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 19 percent compensating balance in its demand deposit
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C
a. If Southwest normally maintains a $22,800 to $34,800 balance in its…
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Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10 percent. The bank requires a 15% compensating balance and the firm currently maintains $20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost to Melody of this loan.
Chapter 15 Solutions
Foundations Of Finance
Ch. 15 - Dell Computer Corporation (DELL) has long been...Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Explain what is meant by the statement The use of...Ch. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - How can the formula interest = principle rate ...Ch. 15 - How can we accommodate the effects of compounding...Ch. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 1SPCh. 15 - Prob. 2SPCh. 15 - Prob. 3SPCh. 15 - (Estimating the cost of bank credit) Paymaster...Ch. 15 - (Cost of short-term financing) The R. Morin...Ch. 15 - (Cost of secured short-term credit) The Marlow...Ch. 15 - (Cost of short-term financing) You plan to borrow...Ch. 15 - Prob. 8SPCh. 15 - (Cost of trade credit) Calculate the effective...Ch. 15 - (Annual percentage yield) Compute the cost of the...Ch. 15 - Prob. 11SPCh. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of factoring) MDM, Inc. is considering...Ch. 15 - (Cost of factoring) A factor has agreed to lend...Ch. 15 - Prob. 16SPCh. 15 - Prob. 17SP
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