Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table: Customer Accounts Receivable Average age of account Average payment period of customer A $11,000 42 days 50 days B $25,000 70 days 65 days C $10,000 48 days 45 days D $28,000 55 days 50 days E $14,000 50 days 60 days F $19,000 21 days 35 days G $30,000 10 days 30 days H $16,000 25 days 40 days . The company extends terms of net 30 days. a. Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products. b. The bank reduces collateral by 15% for returns and allowances. What is the level of acceptable collateral under this condition? c. The bank will advance 85% against the firm's acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?
Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table: Customer Accounts Receivable Average age of account Average payment period of customer A $11,000 42 days 50 days B $25,000 70 days 65 days C $10,000 48 days 45 days D $28,000 55 days 50 days E $14,000 50 days 60 days F $19,000 21 days 35 days G $30,000 10 days 30 days H $16,000 25 days 40 days . The company extends terms of net 30 days. a. Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products. b. The bank reduces collateral by 15% for returns and allowances. What is the level of acceptable collateral under this condition? c. The bank will advance 85% against the firm's acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?
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
Related questions
Question
Springer Products wishes to borrow $90,000 from a local bank using its accounts receivable to secure the loan. The bank's policy is to accept as collateral any accounts that are normally paid within 30 days of the end of the credit period, as long as the average age of the account is not greater than the customer's average payment period. Springer's accounts receivable, their average ages, and the average payment period for each customer are shown in the following table:
|
Customer
|
Accounts
Receivable
|
Average age
of account
|
|
Average payment
period of customer
|
||
|
A
|
$11,000
|
|
42 days
|
|
50 days
|
|
|
B
|
$25,000
|
|
70 days
|
|
65 days
|
|
|
C
|
$10,000
|
|
48 days
|
|
45 days
|
|
|
D
|
$28,000
|
|
55 days
|
|
50 days
|
|
|
E
|
$14,000
|
|
50 days
|
|
60 days
|
|
|
F
|
$19,000
|
|
21 days
|
|
35 days
|
|
|
G
|
$30,000
|
|
10 days
|
|
30 days
|
|
|
H
|
$16,000
|
|
25 days
|
|
40 days
|
|
The company extends terms of net 30 days.
a. Calculate the dollar amount of acceptable accounts receivable collateral held by Springer Products.
b. The bank reduces collateral by 15% for returns and allowances. What is the level of acceptable collateral under this condition?
c. The bank will advance 85% against the firm's acceptable collateral (after adjusting for returns and allowances). What amount can Springer borrow against these accounts?
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