Calculate monthly interest payments

Reference no: EM1348737

The Thompson Corporation projects an increase in sales from $18 million to $25 million, but it needs an additional $500,000 of current assets to support this expansion. Thompson purchases under terms of 2/10, net 60 and currently pays on the 10th day, taking discounts. The CFO is considering using trade credit to finance the additional working capital required. Alternatively, Thompson can finance its expansion with a one-year loan from its bank. The bank has quoted the following alternative loan terms:

a) 12 percent rate on a simple interest loan, with monthly interest payments.
b) 10 percent annual rate on a discount interest basis with no compensating balance.
c) 8.75 percent annual rate on a discount interest basis, with a 10 percent compensating balance.
d) 8 percent add-on interest, with monthly payments.

Based strictly on cost considerations only, what should Thompson do to finance its expansion?

Reference no: EM1348737

Questions Cloud

Nominal and effective cost of trade under credit terms : Find out the nominal and effective cost of trade credit under the credit terms of 3/15, net 30?

Tax consequences associated with a defective trust : What are the tax consequences associated with a defective trust and revocable trusts?

Describe two ways that a business could reduce costs : identify and describe two ways that a business could reduce costs or increase profits by using the Internet or Web applications

Total costs of a new and acquired business : Fast Delivery Company acquired an adjacent lot to construct a new warehouse, paying $30,000 and giving a short-term note for $270,000.

Calculate monthly interest payments : The Thompson Company projects an increase in sales from $18 million to $25 million, but it needs an additional $500,000 of current assets to support this expansion.

What is the ratio of the new to the old wave speed : A ball with a horizontal speed of 1.25m/s rolls off a bench 1.00m/s above the floor. how long does it take to reach the floor.How far from a point on the floor directly below the edge of the bench would the ball land.

Most efficient way to increase sales with lower risk : Are there countries where reputation/"saving face" is very important such that you would trust the customer?

Self-aggrandizement or high self-esteem : In our very individualistic culture, is it not a contradiction that self-effacement is seen as more positive, and self-aggrandizement or high self-esteem (over-confidence) as more negative?

Write down a short report listing those factors : Walmart.com announced that it wants to be "the most visited, most valued online retail site." Suppose you were hired by an outside consulting firm to evaluate Walmart.com's potential to achieve this goal.

User Account

All Pages