SOLUTIONS CHAPTER 8

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

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

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%

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

View Full Document
(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
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
Ask a homework question - tutors are online