The firm is considering two financing options a 7-year

Assignment Help Finance Basics
Reference no: EM13480673

XYZ Corporation is experiencing an average collection period of 120 days. The industry average is about 75 days. The firm has also experienced an increase in its business in the last 2 years and has been buying more inventory. The management wants to increase the amount of permanent inventory stock, and projects an increase in the accounts receivable balance.

The firm is considering two financing options: a 7-year loan at the rate of 8.5%; and a 90 note at prime plus 2%, which would help the firm with liquidity challenges.

Write a memo to management of no more than 350 words in which you respond to the following:

  • Which financing option do you recommend and why? Prime rate is 5%. Explain the relevance of the matching method in making this decision.
  • Is there a scenario where both options may be used? Explain.
  • The firm's average days payable outstanding is 45, and the industry average is 60. Determine possible methods to use payables as a short-term financing strategy. Recommend the most beneficial method and include your rationale.
  • Suppose the firm's vendors offer credit terms of 2/10, net 45. Might the strategy be different in this case and why?

Reference no: EM13480673

Questions Cloud

Explain how accounting principles can in certain cases : explain how accounting principles can in certain cases create differences between financial statement information and
Market-probe a market research firm had the following : market-probe a market research firm had the following transactions in june 2014 its first month of operations.june 1
An income statement shows income before income taxes and : an income statement shows income before income taxes and extraordinary items in the amount of 2740000. the income taxes
Determining core income is an important first step to : determining core income is an important first step to estimating permanent income. explain. whatadjustments to net
The firm is considering two financing options a 7-year : xyz corporation is experiencing an average collection period of 120 days. the industry average is about 75 days. the
Create a powerpoint presentation of 6 slides 3 slides for : 1 create a powerpoint presentation of 6 slides 3 slides for each in which you compare the pros and cons of continuing
An investment project provides cash inflows of 585 per year : an investment project provides cash inflows of 585 per year for 8 years. what is the project payback period if the
Buy coastal inc imposes a payback cutoff of 3 years for its : buy coastal inc. imposes a payback cutoff of 3 years for its international investment projects. if the company has the
For the cash flows in the previous problem suppose the firm : for the cash flows in the previous problem suppose the firm uses the npv decision rule. at a required return of 11

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd