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5e928e7a-b378-441e-ac4d-10f25be2705f.xls
CHAPTER 15 PROBLEMS
WORKING-CAPITAL MANAGEMENT
PROBLEM 15-1
ESTIMATING THE COST OF BANK CREDIT
DATA
Annual interest rate 12%
Minimum demand dep 10%
Loan 100,000
Months 3
Interest =
Effective cost of credit =
PROBLEM 15-2
ESTIMATING THE COST OF COMMERCIAL PAPER
DATA
Paper issue 20,000,000
Placement fee 200,000
Maturity 270
Interest rate 11%
Interest =
Effective cost =
PROBLEM 15-3
COST OF TRADE CREDIT
A)
2/10, net 30:
Percent 2%
Days 10
Net 30
Effective cost =
B)
3/15, net 30:
Percent 3%
Days 15
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Net 30
Effective cost =
C)
3/15, net 45:
Percent 3%
Days 15
Net 45
Effective cost =
D)
2/15, net 60:
Percent 2%
Days 15
Net 60
Effective cost =
PROBLEM 15-4
ANNUAL PERCENTAGE RATE
A)
APR =
B)
APR =
C)
APR =
D)
APR =
-100.00%
PROBLEM 15-5
COST OF SHORT-TERM FINANACING
DATA
Needs to borrow 100,000
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Alternative A:
Interest rate 14%
Compensating bal 15%
Min demand dep 25,000
Amount needed =
Interest =
Rate =
Alternative B:
Total pymt required 116,300
Rate =
B)
Alternative A:
Amount needed =
Interest =
Compensating bal =
Rate =
PROBLEM 15-6
COST OF SHORT-TERM BANK LOAN
DATA
Maximum Loan 100,000
Int over prime 1%
Compensating bal 20%
Prime rate 12%
A)
Interest =
Compensating bal =
Rate =
B)
Rate =
PROBLEM 15-7
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COST OF COMMERCIAL PAPER
DATA
Amt issued 500,000
Interest 10.25%
Cost of issuance 12,000
Term 180
Interest =
Effective Cost =
PROBLEM 15-8
COST OF ACCOUNTS RECEIVABLE
DATA
Needs 300,000
Net credit terms 60
Monthly credit sales 200,000
A/R balance 400,000
Over prime 2%
Processing charge 1%
Receivable pledged 200,000
Face value lent 75%
A)
prime rate
Interest =
Rate =
B)
Over prime
Compensating balance
Already maintained bal
Compensating bal =
Interest =
Rate =
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PROBLEM 15-9
COST OF FACTORING
DATA
Credit sales 400,000
Receivables balance 800,000
Term 60
Advance 90%
Less: interest 1.50%
Reduction in costs 1,500
Factoring fee 1%
Reserve 9%
Maximum advance:
Face Value of Rec
(2 months)
Less: Factoring fee
Reserve
Interest
Loan Advance
Rate =
PROBLEM 15-10
COST OF SECURED SHORT-TERM CREDIT
DATA
Alternative A:
Loan 500,000
Advance 80%
Fee 1%
Interest 11%
Avg receivables 1,000,000
Months 3
A/R =
Fee =
Interest cost =
Rate =
Alternative B
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Loan
Interest
Warehouse
Warehousing cost =
Interest cost =
Rate =
PROBLEM 15-11
COST OF SHORT-TERM FINANCING
DATA
Loan 20,000
Interest 10%
Months 6
A)
Interest =
Rate =
B)
Compensating balance =
Rate =
C)
Rate =
PROBLEM 15-12
COST OF FACTORING
DATA
Avg rec per month 100,000
Fee 2%
Reserve 20%
Interest 12%
Interest per month 1.00%
Avg rec=
Less:
Fee =
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Reserve =
Interest =
Maximum Advance =
Rate =
PROBLEM 15-13
COST OF A SHORT-TERM BANK LOAN
A)
Loan amount $240,000
Loan period 3 months
Loan rate 8%
Compensating balance 20%
Current bank balance $4,000
Analysis:
Interest cost
Added compensating balance
Cost of credit
B)
Cost of credit
PROBLEM 15-14
CASH CONVERSION CYCLE
DATA
Jan-03 Jan-03 Jan-03 Jan-03
Sales-Net 2,873 3,475 5,296 7,759
Receivables-Total 411 538 726 903
Accounts Payable 283 447 466 1,040
Inventories-Total 220 293 429 251
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Jan-03
12,327
1,486
1,643
233
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