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# FM27 14 - 450.0 Notes payable b 436.9 Inventory 750.0...

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e. To reduce the accounts payable by \$250,000, which reflects the 1% discount, Malone must pay the full cost of the payables, which is \$250,000/0.99 = \$252,525.25. The lost discount is the difference between the full cost of the payables and the amount that is reported net of discount: Lost discount = \$252,525.25 - \$250,000.00 = \$2,525.25. The after-tax cost of the lost discount is \$2,525.25(1-0.40) = \$1,515.15. Notice that this provides a tax shield in the amount of \$2,525.25(0.40) = \$1,010.10. The total amount of cash that Malone needs to pay down \$250,000 of accounts payable is the gross amount minus the tax shield: \$252,525.25 - \$1,010.10 = \$251,515.15. Face amount of loan = 0.65 5 \$251,515.1 0.20 0.15 1 5 \$251,515.1 = = \$386,946.38. Pro Forma Balance Sheet (Thousands of Dollars): Cash a \$ 127.4 Accounts payable \$ 250.0 Accounts receivable
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Unformatted text preview: 450.0 Notes payable b 436.9 Inventory 750.0 Accruals 50.0 Prepaid interest 58.0 Total current Total current assets \$1,385.4 liabilities \$ 736.9 Fixed assets 750.0 Long-term debt 150.0 Common equity c 1,248.5 Total assets \$2,135.4 Total claims \$2,135.4 a \$386,946.38(0.2) = \$77,389.27 = Compensating balance. Cash = \$50 + \$77.4 = \$127.4. b Notes payable = \$50 + \$386.9 = \$436.9. c Common equity = Previous common equity – after-tax lost discount = \$1,250 - \$1.5 = \$1,248.5 27-11 a. 1. Line of credit: Commitment fee = (0.005)(\$2,000,000)(11/12) = \$ 9,167 Interest = (0.11)(1/12)(\$2,000,000) = 18,333 Total \$27,500 2. Trade discount: a. = rate Nominal ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ 98 2 ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ 30 360 = 24.49 ≈ 24.5%. Total cost = 0.245(\$2,000,000)/12 = \$40,833. Answers and Solutions: 27 - 14...
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