SHORT TERM FINANCE 02

1. Rashana Company needs working capital OF TK 5 core. There are three alternative:-

(A) To forgo cash discount granted on the basis of 3/15, net 30
(B) To borrow from bank at 14% interest rate p.a. the bank requires 20% compensating balance on loan amount.
(C) To issue commercial paper at 12%. The cost of issuing the commercial paper would tk 50000 in each six month period.
  Required: Which method should the company choose?

2. Beta shoe company ltd is considering the following methods of financing short term capital requirement;
(I) Purchase raw materials on credit term 3/20, net 75
(II) Borrow tk 25 lac @ 12% interest maintaining 10% compensating balance on discount basis.
(III) Assigning account receivable and taking loan from mercantile bank at 12% interest. Annual credit sale of the company is tk 48 lac with average collection period of 60 days. The bank will sanction loan up to 80% of the face value of A/R. processing cost loan is 1% of the face value of A/R
(IV) Issuing commercial paper tk 30 lac the face value sold tk 28 lac for a period of 6 month. Floatation cost of the commercial paper is 2% of face value.
Required: which method is most suitable for the company?

3. Rexona ltd. has got 80 00 000 revolving credit agreement with IFIC bank. Bank at 12% interest rate p.a. and 2% commitment fee on the unused part of the loan. If the bank 80% of the total commitment You are calculating:
(I) What is the expected annual cost of credit?
(II) What is the EIR?
(III) What is the EIR if utilized 60% loan?
(IV) What is the EIR if utilized only tk 32 00 000 of the loan?

4. Assume that the annual credit sale of Confidence cement ltd. Is tk 10 lakh. With an average A/R balance of tk 2 lakh, and average collection period of 72 days. The company is considering rising of short term fund to meet its working capital requirement by selling its A/R at 16 % annual interest on face value of A/R with 20 % reserve against the A/R. what will be the cost of factoring A/R? Assume that factoring commission is 2% and past experience show that bad debt loss is 2.5%.

5. A company annual credit sale is tk 8 Core and average collection period is 90 days. Past experiences indicate that the bad debt loss was 2 % and collection and administration cost is tk 8 lacks. The factor charge 3 % commission and advance up to 90 % at 15% interest. How much the company will get as advance and what is the effective interest rate of factoring the EIR?
6. Issuing commercial paper at face value of tk 1.08 cores for six months. Cost of issue is tk 50000 per issue.

7. A company total credit sales for a year worth tk 12 lakh with an average collection period of 90 days. The company is planning to take loan from bank average the A/R at 13 % interest rate p.a. maintaining 10% reserve. Find the amount of loan utilization and EIR?

8. Beximco ltd. has got tk 6 lakh revolving credit agreement with IFIC bank at 12% interest rate per annum and 2% commitment fee on the unused part of the loan. (I) if the company utilized on an average 70% of the total commitment. Find out the amount of the utilization and effective interest rate. (II) What will happen if the average utilized of the loan 50%?
9. A commercial paper with a face value of tk 1000 each sold for tk 955 for 12 days. The floatation cost tk 5. Calculate the EIR?
10. X company sells goods for tk 40 00 000 on credit. It credit terms is 3/10, net 30 and if 30% of the customer accepts cash discount how much of the profit will be business have to avoid before tax?
11. A company has deducts to make a60dys loan of tk 100 000. Which is repayment on maturity at tk 1 10 000. Calculate EIR?

12. Mr. Joy borrowed tk 70 000 from IFIC bank at 14% interest. The bank deducts interest in advance. Compute the EIR IF:
(A) Principal amount of the loan and interest are repaid at maturity
(B) Interest is paid after every 60 days.
12. Range ltd needs to borrow tk 1 50 000 @10% interest p.a. with monthly installments for a one year period. Compute EIR?