Compute the annualized all-in cost

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Reference no: EM132897266

PT Wayangwong is an Indonesia-based company which sells its product, Wayang, globally. One of major customer of PT Wayangwomg is Koala Corporation from Australia. PT Wayangwong sold its product to Koala Corporation for AUD2,000,000 with payment due in 6 months. PT Wayangwong is considering two alternatives for financing its receivables:

(1) Use bank credit line. Interest would be at prime rate of 6% plus 50bps p.a. PT Wayangwong would need to maintain compensating balance of 15% of loan's face amount. No interest will be paid on the compensating balance by the bank.

(2) Factoring its receivable. PT Wayangwong has been approached by a factor that offers to purchase Koala Corporation receivable at a 18% p.a. discount plus 1.75% charge for nonrecourse clause.

Based on the provided information:

a. Compute the annualized all-in cost of each alternative!

b. Explain advantage(s) and disadvantage(s) of each alternative!

c. Provide recommendation should be undertaken by PT Wayangwong!

Reference no: EM132897266

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