Small manufacturer of metal office equipment

Assignment Help Financial Management

Reference no: EM132022334

Charles Smith recently was hired as president of Dellvoe Office Equipment Inc., a small manufacturer of metal office equipment. As his assistant, you have been asked to review the company’s short-term financing policies and to prepare a report for Smith and the board of directors. To help you get started, Smith has prepared some questions that, when answered, will give him a better idea of the company’s short-term financing policies. In discussing a possible loan with the firm’s banker, Smith found that the bank is willing to lend Dellvoe up to $800,000 for one year at a 9% simple, or quoted, rate. However, he forgot to ask what the specific terms would be.

Now assume that the bank charges simple interest, but it requires the firm to maintain a 20% compensating balance, nad assume also that Dellvoe has $100,000 of cash balances that it normally holds for transactions purposes, which can be used as part of the required compensating balance.

A. How does this affect the size of the required loan?

B. and the EAR of the loan?

Dellvoe is considering using secured short-term financing.

C. What is a secured loan?

D. What two types of current assets can be used to secure loans?

Reference no: EM132022334

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