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1. The Chalfant Company is considering the use of commercial paper to finance a seasonal need for funds. A commercial paper dealer will sell a $25 million issue maturing in 91 days at an annual interest rate of 8.5 percent (deducted in advance). The fee to the dealer for selling the issue is $75,000. Determine Chalfant's annual financing cost of this commercial paper issue.
2. The Boone Furniture Company is considering factoring its receivables. Its average level of receivables is $4 million, and its average collection period is 70 days. Boone's bad-debt losses average $9,000 per month. (Assume 30 days per month.) Factoring receivables will save the company $3,000 per month through the elimination of its credit department. The factor charges a 2 percent commission and requires a 10 percent reserve for returns and allowances. Boone can borrow funds from the factor at 3 percentage points over the prime rate, which is currently 9 percent.
a. Determine the amount of usable funds Boone can obtain by factoring its receivables.
b. Calculate the annual financing cost of this arrangement.
Risk and Return" Please respond to the following: From the e-Activity, determine whether stock prices are affected more by long-term or short-term performance. Provide one (1) example of the effect that supports your claim.
A loan is amortized over five years with monthly payments (i.e. end of month) at an annual nominal interest rate of 5% compounded monthly. The first payment is 500 and is to be paid one month from the date of the loan. Calculate the outstanding loan ..
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You wish to know how well a company is managing its accounts receivable and inventory. You will be looking at:
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A mortgage lender tells you that you can afford to spend $1,000/month on a mortgage. At a rate of 6.0%, what is the loan amount that you will qualify for assuming a 30-year mortgage, payable monthly? Assuming a 20% down payment, what is the maximum p..
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Fargo Memorial Hospital has annual net patient service revenues of $14,400,000. It has two major third-party payers, plus some of its patient is self-payers. The hospitals patient accounts manager estimates that 10% of the hospitals paying patients (..
Suppose you invest $ 2,026 today to start a business. In 4 years you hope to sell this company for $ 8,865. What would be your annualized rate of return? Assume that, starting next year, you put $ 662 into a savings account that pays 9 % interest eve..
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