Ch27 P12 Build a Model - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14...

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1 of 1 4/19/2010 Chapter 27. Ch 27-12 Build a Model Cash $50 Accounts payable $500 Accounts Receivable 450 Notes payable 50 Inventory 750 Accruals 50 Current Assets 1,250 Current liabilities 600 Fixed assets 750 Long-term debt 150 Common equity 1,250 Total assets $2,000 Total liabilities and equity $2,000 a. How large would the accounts payable balance be if Malone takes discounts? If it does not take discounts and pays in 30 days? Input Data Discount, if taken 1% Days Malone has taken to make payment 60 Term of discount (days) 10 Interest rate on bank loan 15% Payment due (days) 30 Required compensating balance 20% Accounting days/year 360 Purchases per day = Old A/P / old days until payment = / = Accounts payables = x Accounts payables if take discounts = x = Accounts payables if don't take discounts = x = b. How large must the bank loan be if Malone takes discounts? If Malone doesn't take discounts? The company must go from $500 to either $83.33 or $250, so it will need this amount of cash: Cash needed if take discounts: Cash needed if don't take discounts: Amount needed = Loan - (Interest rate on loan)(Loan) - (Compensating balance)(Loan) Loan = Amount needed/(1- Interest rate - Comp. Balance %) Loan if take discounts: Loan if don't take discounts: c. What are the nominal and effective costs of nonfree trade credit? What is the effective cost of the bank loan? Based on these costs, what should Malone do?
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