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profitability–risk tradeoff associated with each financing strategy. Which
strategy would you recommend to Morton Mercado for Kanton Company?
d. Find the effective annual rate under:
(1) The line-of-credit agreement.
(2) The revolving credit agreement. (Hint: Find the ratio of the dollars that
the firm will pay in interest and commitment fees to the dollars that the
firm will effectively have use of.)
e. If the firm does expect to borrow an average of $600,000, which borrowing
arrangement would you recommend to Kanton? Explain why. WEB EXERCISE
W Go to the Web site www.21stfinancialsolutions.com.
1. Click on What Is Factoring? What are factoring’s advantages?
2. In the left-hand navigation bar, click on Is factoring for You? What are the
additional benefits, and what types of companies can use factoring to their
3. Using the information in How factoring works, summarize the factoring
Next, go to the Web site www.wellsfargo.com. CHAPTER 15 Current Liabilities Management 667 4. On the top navigation bar, click on commercial services. Under Business
Lending and Leasing, click on commercial loans.
a. What types of loans does the bank offer businesses?
b. Click on each of the four categories and summarize the type of loan and
5. At the top of the page, click on the link for factoring services.
a. Describe the two types of factoring services.
b. Click on Wells Fargo Business Credit. What features does Wells Fargo
offer its factoring customers? Remember to check the book’s Web site at
for additional resources, including additional Web exercises. INTEGRATIVE CASE 5
Case de Diseño
n January 2004, Teresa Leal was named treasurer of Casa de Diseño.
She decided that she could best orient herself by systematically examining each area of the company’s financial operations. She began by
studying the firm’s short-term financial activities.
Casa de Diseño is located in southern California and specializes in a
furniture line called “Ligne Moderna.” Of high quality and contemporary
design, the furnit...
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