Dome Metals has credit sales of $468,000 yearly with credit terms of net 60 days, which is also the average collection period.a. Assume the firm offers a 3 percent discount for payment in 10 days and every customer takes advantage of the discount. Alsoassume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the netgain or loss be to the firm if this discount is offered? (Use a 360-day year.)Net change in incomeb. Should the firm offer the discount?O NoYes

Firm often make strategies to collect account receivables outstanding balance at an early point of…

Answered: Dome Metals has credit sales of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Utah Inc. would need cash of P5,000,000 for a period of 3 months from its bank. The latter offered 12% interest but it would be charged direct origination costs to be deducted in advanced in the amount of P200,000. What would the simple annual effective cost of this bank loan?
Campbell Computing Inc. expects to have sales this year of $30 million under its current credit policy. The company offers a credit term of 2/8, net 20. Currently, 60 percent of paying customers take the discount and rest are paying on time. The bad debt loss is 2 percent. The company has a profit margin of 20%, and uses a 5% short-term bank loan to finance its accounts receivables. With 365-day a year assumption, please calculate the following items: a. The bad debt loss of the company this year b. The annual discount given to customers c. The accounts receivables level d. The financing cost of accounts receivables
ABC Corporation receives checks from its customers. The total check value averages 700,000 each day. It takes an average of 5 days from deposits for these to clear the bank. If the bank offers to accelerate the 5-day clearing process to 3 days for a monthly fee of 600. If ABC can earn 4% investment income from excess cash, how much is the net annual benefits/cost of this bank offer?
Bank K is about to sign a loan agreement with a mining company.The current LIBOR rate is 8%.The risk premium for the company has been estimated as 3% and the origination fee will be 0.1875 percent.The bank will be requesting a 9% compensating balance requirement.If the reserve requirement is 6%,what is the promised gross return on the loan?
) Prince Edward Bank considers increasing a type of loans in the credit portfolio by $3,500,000,which will generate a gross income of 2.5%p.a. The bank assumes PD is 10% and estimates LGDis 20% and EAD as 80%. The net income, which is gross income minus Expected Loss (i.e. EL),will be used in the RAROC analysis. When doing so, the Bank refers to the net income andunexpected loss (i.e. UL) as the capital-as-risk estimation.Required:If the ROE of Prince Edward Bank is targeted at 25%, analyze whether the loans could be addedto the portfolio by RARoC analysis
Suppose a bank has the following Balance Sheet Assets Liabilities RSA = 120 RSL = 90 FRL = X FRA = 110 (Fixed rate liabilities can be found if needed by determining what number it must be to balance the balance sheet.) Suppose all the Assets and Liabilities were set last year when the interest rate was 10, if the interest rate has changed by 2% since that time what is the current cost from all of the bank's liabilities? Your Answer:
A bank has two assets: 70 percent in one-month Treasury bills and 30 percent in real estate loans. If the bank must liquidate its T-bills today, it receives $95 per $100 of face value; if it can wait to liquidate them on maturity (in one month's time), it will receive $100 per $100 of face value. If the bank has to liquidate its real estate loans today, it receives $90 per $100 of face value liquidation at the end of one month will produce $92 per $100 of face value. The one-month liquidity index value for this bank's asset portfolio is: Select one: a. 1.10 b. 0.958 c. 0.979 d. 0.964 e. 1.06 Clear my choice
Jolly Banker is calculating the loan price for a $500,000 operating loan to Kelly business. If approved, this loan will be funded with 35% equity capital, and the remaining funds will come from the bank's debt capital. You have the following information about your bank’s outlays: Administrative costs 0.45% Cost of debt 7.00% Cost of equity 5.00% Probability of loss 0.55% Fees paid by the borrower 1.00% Calculate the weighted average cost of debt for this funding request. (Enter your answer in percentage. Round your answer to 2 decimal places)
A bank offers a corporate client a choice between borrowing cash at 9% per annum and borrowing Bitcoin at -5% per annum. The risk-free interest rate is 3% per annum, and storage costs are 7% per annum. The interest rates on the two loans are expressed with annual compounding. The risk-free interest rate and storage costs are expressed with continuous compounding. Suppose that the price of Bitcoin is $58,000 and the corporate client wants to borrow $1,160,000. Discuss whether the rate of interest on the Bitcoin loan is too high or too low in relation to the rate of interest on the cash loan. What is the correct rate of interest for Bitcoin loan?
24) Can i get help with this question please
Assume the following facts about a firm that borrows by pledging its receivables Average balance of accounts receivable. Annual receivables turnover. Administrative fee charged on all new receivables. Interest rate on outstanding loans Percent of receivables accepted $60,000 6x 1.25% 15% 80% What is the effective cost of financing stated as an annual rate? Batangas Company estimates its total cash outlays at $160 million during the coming year. The company normally spends $30 to transfer cash from marketable securities to cash in bank and vice versa. The marketable securities portfolio currently earns 4% annual rate of return. Requirements: 1. Optimal transaction size. 2. Average cash balance. 3. Total annual cost of cash if the company adopts the optimal transaction size. 4. Minimum and maximum cash balances. 5. Assume that the company has to keep $100,000 balance in the bank as safety cash. Repeat your solution for the first four requirements.
A bank that provides overdraft protection charges 12 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for a $440 overdraft? (Assume the interest is for the full amount borrowed for a whole year.) b. How much would be saved by using the overdraft protection loan if a customer has five overdraft charges of $45 each during the year?

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