Short term financing with Bank Loans
Not what you're looking for?
Short term financing with Bank Loans
The Hand-to-Mouth Company needs $10,000 loan for the next 90 days. It is trying to decide which of the three alternatives to use:
Alternative A: Forgo the discount on its trade credit agreement that offers terms of 2/10, net 30.
Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 30 days at an APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means Hand-to Mouth must borrow more than $10,000.
Alternative C: Borrow the money from Bank B, which has offered to lend the form $10,000 for 30 days at an APR of 15%. The loan has a 1% origination fee.
Which alternative is the cheapest source of financing for Hand-to-Mouth?
Purchase this Solution
Solution Summary
The solution explains how to determine the cheapest source of financing from the given alternatives
Solution Preview
Alternative A : We calculate the cost of foregoing the cash discount. The nominal annual cost of not taking the cash discount is
Nominal annual cost = % discount/(100-% discount) X 365/(Credit period - discount ...
Purchase this Solution
Free BrainMass Quizzes
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.