Assume you started a new business last year with $60,000 of your own money that was used to purchase equipment. Now you are seeking a $30,000 loan to finance the inventory needed to reach this year's sales target. You have agreed to pledge your venture's delivery truck and your personal automobile as support for the loan. Your sister also has agreed to cosign the loan. During your initial year of operation, you paid your suppliers in a timely fashion.
C. Assume at the end of next year, you will have an accounts receivable balance of $25,000 and an inventories balance of $35,000. If a bank normally lends an amount equal to 80 percent of accounts receivable and 50 percent of inventories pledged as collateral, what would be the amount of a bank loan a year from now?© BrainMass Inc. brainmass.com October 25, 2018, 1:34 am ad1c9bdddf
B. Accounts receivables are considered business assets just like inventory, the delivery truck, and other things owned by the company. This is because accounts receivables are money owed to the company by customers for products and/or services sold to them on credit. As such, the company could show what ...
The solution examines the small business loans and pledge assets.
Working Capital Management
A) Dan plans to use the preceding ratios as the starting point for discussions with SKI's operating executives. He wants everyone to think about the pros and cons of changing each type of current asset and how changes would interact to affect profits and EVA. Based on the data in the table, does SKI seem to be following a relaxed, moderate, or restricted working capital policy?
b) How can one distinguish between a relaxed but rational working capital policy and a situation where a firm simply has a lot of current asset because it is inefficient? Does SKI's working capital policy seem appropriate?
c) Calculate SKI's cash conversion cycle, assuming all calculations use a 360-day year.
d) What might SKI do to reduce its cash and securities without harming operation?
Q 23-3 What are the advantages of matching the maturities of assets and liabilities? What are the disadvantages?
Q 23-4 From the standpoint of the borrower, is long-term or short-term credit riskier? Explain. Would it ever make sense to borrow on a short-term basis if short-term rates were above long-term rates?
Q 23-5 If long-term credit exposes a borrower to less risk, why would people or firms ever borrow on a short-term basis?
Q 23-9 The availability of bank credit is often more important to a small firm than to a large one. Why?
Mini Case !
a) B&B tries to match the maturity of its assets and liabilities. Describe how B&B could adopt either a more aggressive or more conservative financing policy.
b) What are the advantages and disadvantages of using short-term credit as a source of financing?View Full Posting Details