Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134202648
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 27, Problem 6P
Summary Introduction
To determine: The cheapest source of financing for H Company.
Introduction:
Banks are mainly useful for the small-scale business. The effective interest rate on bank loan is affected by common loan stipulations and fees.
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Gab Company expects that it will need P600,000 cash for March 2022. Possible means of financing are: (A) Establish a 1-year credit line for P600,000. The bank requires a 2 percent commitment fee. The interest rate is 21 percent. Funds are needed for 30 days. (B) Fail to take a 2/10, net/40 discount on a P600,000 credit purchase. (C) Issue P600,000, 20 percent commercial paper for 30 days. Which financing strategy should be selected? Provide solution
a. Strategy Ab. Strategy Bc. Strategy Cd. Strategy A and Be. Strategy B and C
Wrexham Corp. (WC) purchases computer parts from its suppliers 1/15, net 30. However, to take advantage of the discount WC needs to get a bank loan. The bank charges 8% interest (APR) and a one percent origination fee for the loan (assume the loan is for 1 year and is renewed yearly). What is the effective annual cost of not taking the trade discount? What is the effective cost of the bank loan? Should WC take out the bank loan to take advantage of the trade credit?
Tokyo Corporation must pay one of its suppliers P765,000. The bank requires a 15 percent compensating balance on loans to businesses. Due to the absence of funds at the lending bank, Tokyo Corporation must borrow enough to have P765,000.00 available to pay its suppliers after covering the compensating balance. How much must Splash Corporation borrow in order to pay its suppliers P765,000? In your calculations, assume that a year has 360 days.
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Chapter 27 Solutions
Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 27.1 - Prob. 1CCCh. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CCCh. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CCCh. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CCCh. 27.5 - What is the difference between a floating lien and...
Ch. 27 - Prob. 1PCh. 27 - Sailboats Etc. is a retail company specializing in...Ch. 27 - What is the difference between permanent working...Ch. 27 - Quarterly working capital levels for your firm for...Ch. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Which of the following one-year 1000 bank loans...Ch. 27 - The Needy Corporation borrowed 10,000 from Bank...Ch. 27 - Prob. 11PCh. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - The Signet Corporation has issued four-month...Ch. 27 - Prob. 15PCh. 27 - Prob. 16PCh. 27 - Prob. 17PCh. 27 - Prob. 18P
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