The prime rate currently is 85 a the bank will adjust

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Unformatted text preview: 4,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime 3% and a 2% commission charge. The prime rate currently is 8.5%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Software’s effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months? (Assume that the prime rate remains at 8.5% during the life of the loan.) LG5 15–17 Factoring Blair Finance factors the accounts of the Holder Company. All eight factored accounts are shown in the following table, with the amount factored, the date due, and the status on May 30. Indicate the amounts that Blair should 664 PART 5 Short-Term Financial Decisions have remitted to Holder as of May 30 and the dates of those remittances. Assume that the factor’s commission of 2% is deducted as part of determining the amount of the remittance. Account Amount Date due Status on May 30 A $200,000 May 30 Collected May 15 B 90,000 May 30 Uncollected Uncollected C 110,000 May 30 D 85,000 June 15 Collected May 30 E 120,000 May 30 Collected May 27 F LG6 15–18 June 15 Collected May 30 90,000 May 15 Uncollected H LG1 180,000 G 30,000 June 30 Collected May 30 Inventory financing Raymond Manufacturing faces a liquidity crisis—it needs a loan of $100,000 for 30 days. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firm’s accounts receivable are quite low, but its inventory is considered liquid and reasonably good collateral. The book value of the inventory is $300,000, of which $120,000 is finished goods. (1) City-Wide Bank will make a $100,000 trust receipt loan against the finished goods inventory. The annual interest rate on the loan is 12% on the outstanding loan balance plus a 0.25% administration fee levied against the $100,000 initial loan amount. Because it will be...
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