Solution-Method of financing to the firm

Method of financing to the firm

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Reference no: EM132421998

Problem: The Navana Company LTD. Needs to finance its short term financing needs of tk. 4, 00,000 for six months. The company is considering the following possibilities:

i) Terminal ware house loan from a finance company. The terms are 12% annualized with an 80% advanced against the value of the inventory. The warehouse costs are tk. 6,500 per month.

ii) A floating lien arrangement from the bank. The bank will maintain a 10% compensating balance. Bank will charge 15% interest rate.

iii) A factor will buy the company receivables (6, 00,000) which have a collection period of 60 days. The factor will advance up to 75% of the face value of the receivables at 10% on an annual basis. The factor will also charge a 2% fee on all receivables purchased. It has been estimated that the factor's services will save the company a credit department expenses and bad debt expense of tk. 1,500 per month.

Requirement: Which is the least costly method of financing to the firm?

Reference no: EM132421998

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Method of financing to the firm

Reference no: EM132421998

Reference no: EM132421998

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