How much is the principal amount of the loan

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Q1. A firm feels that its credit costs are too high. By tightening its credit standards, bad debts will fall from 5% to 2%. However, sales will fall from P100,000 to P90,000 per year. The variable cost per unit is 60% of sales price, and the average investment in receivable is expected to remain unchanged. The effective tax rate is 30%. Compute the net benefit (or cost) if the firm tightens its credit standards.

Q2. A company received a line of credit from its bank. The stated interest rate is 12%, deducted in advance. The line of credit agreement requires that an amount equal to 20% of the loan be deposited into a compensating balance account. On March 1, the company drew down the entire amount of the loan and received the proceeds of P340,000. How much is the principal amount of the loan?

Reference no: EM132943661

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