Estimate the cost of the line of credit to johnson

Reference no: EM13275941

Johnson Enterprises Inc is involved in the manufacture and sale of electronic components use in small Am/FM radios. The firm needs $300,000 to finance an anticipated expansion in receiveables due to increased sales. Johnson's credit terms are net 60, and its average monthly credit sales are $200.000. In general, the firm's customers pay within the credit period; thus, the firm's average accounts receivables balance is $400,000. Chuck Idol, Johnson's comptroller, approached the firm's bank with a request for a loan for the $300,000 using the firm's account's receiveables as collateral. The bank offered to make a loan at a rate of 2 percent over prime plus a 1 percent processing charge on all receivables pledged($200,000 per month). Furthermore, the bank agreed to lend up to 75 percent of the face value of the receiveables pledged. a. Estimate the cost of the receiveables loan to Johnson when the firm borrows the $300k. The prime rate is 11%. b. Idol also requested a line of credit for $300k from the bank. The bank agreed to grant the necessary line of credit at a rate of 3%over prime and required 15% compensating balance. Johnson currently maintains an average demand deposit of $80k. Estime the cost of the line of credit to Johnson. c. Which source of credit should Johnson select, Why?

Reference no: EM13275941

Questions Cloud

What is the primary emphasis of each group : What is the primary emphasis of each group and how would that affect the ratios they focus on? In your discussion, please specifically identify the ratios used by each group.

What was hhh economic value added : What was HHH's Economic Value Added(EVA) i.e., how much value did management add to stockholders wealth during the year?

What annual rate of return would she have earned : If an investor has purchased the security at market on March 28, 2016 and held it until it matured, what annual rate of return would she have earned?

Explain the best lewis structure of a molecule composed : Based on formal charges, which statement about the best Lewis structure of a molecule composed of one atom each of N, S, and Cl

Estimate the cost of the line of credit to johnson : Johnson currently maintains an average demand deposit of $80k. Estimate the cost of the line of credit to Johnson. c. Which source of credit should Johnson select, Why?

Demonstrate the method by implementing the function : show that any Boolean function of 4 variables can be implemented by using one 4x1 multiplexer,one 2-to-4 decoder, and an unlimited number of OR gates. Demonstrate your method by implementing the function f(a, b, c, d) = ab'd' + bcd' + bc'd + a'bd.

Use a scale drawing to compute the fourth displacement : A spelunker is surveying a cave. He follows a passage that goes 181 m straight west, Use a scale drawing to determine the fourth displacement

Explain the advantages and disadvantages of distillation : Eugenol can also be isolated from cloves using extraction with CO2. discuss the advantages and disadvantages of distillation versus CO2 extraction.

Find line integral of e around positive quadrant of circle : 1a) find the equation of an electromagnetic wave, which has a period of 10^-4 sec, amplitude of 15 units and a positive maximum of 2.5*10^-5 secs 1b) if a uniform electric field, E = 20 a(subscript)y V/m is made to work along a circular path.

User Account

All Pages