FM27 14 - 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 $

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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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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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