SOLUTIONS CHAPTER 8 - CHAPTER 8 SOURCES OF SHORT-TERM...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 8 SOURCES OF SHORT-TERM FINANCING 8-1 (a) (b) (1) March 20: $490 (2) March 30: $3,360 (3) April 10: $1,455 (4) March 20: $4,312 8-2 The bank loan should be chosen because it is cheaper than the other two alternatives. 8-3 (a) Face value of account $10,000 Less: reserve (0.20 x $10,000) 2,000 factoring fees (0.03 x $10,000) 300 Funds available for advance $ 7,700 Less: interest on advance (0.01 x $7,700) 77 Net proceeds from advance $ 7,623 (b) Effective annual cost 8-4 8-5 The interest charge in dollars over the entire credit life is the monthly payment times the total number of payments minus the amount borrowed (cash price - down payment). For example, the interest charge in dollars for Creditor A is $6,000 ($300 x 60 - $12,000). By financial calculator: (a) 17.3% (b) 25.4% (c) 3.67% (d) 3.43% (e) 31.6% 8-6 Factoring commission (0.02 x $3,600,000) $72,000 Less: savings ($3,000 x 12) 36,000 Net factoring fee $36,000 8-7 (a) Dollar cost = ($35,000)0.10 + ($15,000)0.01 = $3,650 (b) Percentage cost = $3,650/$35,000 = 10.42%
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
(c) Dollar cost = ($20,000)0.10 + ($30,000)0.01 = $2,300 Percentage cost = $2,300/$20,000 = 11.5% 8-8 Citizens Bank and Trust : 4500 x 360 = .111 = 11.1% 45000 – 4500 360 Benchmark Community Bank 4950 x 360 = 4950 = .124 = 12.4% 45000 – 4500 360 40050 8-9 (a) 10 = 12.5% 100-20 (b) 10 = 11.1% 100-10 (c) 10 = 10.0% 100 8-10 Benchmark Community Bank Citizens Bank and Trust 10/(100-20) = 12.5% 13% Thus, the Benchmark Community Bank is making the better offer. T 1. Spontaneous liabilities are those that grow out of normal patterns of successful operations in the business. T 2. Companies usually enjoy the longest credit terms when they buy under the terms of seasonal datings. F 3. The effective rate of interest and the nominal rate of interest (coupon interest rate) are the same when interest is paid on a discount basis . F
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/20/2012 for the course FIN 7023 taught by Professor Wald during the Spring '12 term at The University of Texas at San Antonio- San Antonio.

Page1 / 7

SOLUTIONS CHAPTER 8 - CHAPTER 8 SOURCES OF SHORT-TERM...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online