Method of financing to the firm

Assignment Help Finance Basics
Reference no: EM132421998

Problem: The Navana Company LTD. Needs to finance its short term financing needs of tk. 4, 00,000 for six months. The company is considering the following possibilities:

i) Terminal ware house loan from a finance company. The terms are 12% annualized with an 80% advanced against the value of the inventory. The warehouse costs are tk. 6,500 per month.

ii) A floating lien arrangement from the bank. The bank will maintain a 10% compensating balance. Bank will charge 15% interest rate.

iii) A factor will buy the company receivables (6, 00,000) which have a collection period of 60 days. The factor   will advance up to 75% of the face value of the receivables at 10% on an annual basis. The factor will also charge a 2% fee on all receivables purchased. It has been estimated that the factor's services will save the company a credit department expenses and bad debt expense of tk. 1,500 per month.

Requirement: Which is the least costly method of financing to the firm?

Reference no: EM132421998

Questions Cloud

What is the value of firm according to mm without taxes : The company is in the process of issuing 3,000 bonds with a face value of $1,000 per bond that are selling at 80% of par, to repurchase 75,000 shares
Big data analysis in financial industry assignment : Big data analysis in financial Industry help and solutions:- Define Big Data Analysis
Explain the difference between a high yield bond : Explain the difference between a High Yield Bond, a Mezzanine piece and a B-note. Where would you rather be in the capital stack with your risk tolerance?
Calculate the amount of life insurance linda needs to buy : Based on the total loss estimation by the "Needs Approach, " calculate the amount of life insurance Linda needs to buy, given that the interest rate is 9.5%.
Method of financing to the firm : The Navana Company LTD. Needs to finance its short term financing needs of tk. 4, 00,000 for six months. The company is considering the following possibilities:
Explain why you believe the topic is important : The topic is: Raising capital by selling stock: 1. Explain why you believe the topic is important.
How to record on transaction worksheet : In addition, CLC collected $85,000 of the outstanding childcare fees they had earned in previous fiscal years and wrote the remainder off as bad debt.
Discuss 5 demographic elements : Give a brief description of who will be wearing this trend going forward. Consider where he/she might wear this garment i.e."work, weekend casual, clubbing
Determining the compensating balance : What if there is a 8% compensating balance? How much do you need to borrow to leave the bank with 1.5 million?

Reviews

Write a Review

Finance Basics Questions & Answers

  Would this be an efficient way to raise tax revenue

The government provides patents to pharmaceutical companies that allow them to charge high prices for the drugs they develop for some years.

  Problem regarding the market capitalization

a. What was GE's market capitalization? What wasGE's market-to-bookratio? b. What was GE's book debt-equity ratio? What wasGE's marketdebt-equity ratio? c. What was GE's enterprise value?

  Impacts on nominal interest rates

Discuss how inflation or purchasing power impacts stated or nominal interest rates. Suggest the real-life example of how an annuity can be employed for retirement planning

  For any company to succeed it must be able to invest in its

for any company to succeed it must be able to invest in its future. investing in the future presents certain risks.

  How might the internet change

How might the Internet change, if at all, totalitarian governments such as North Korea?

  How much will you pay for the company stock today

If you require a return of 8 percent on your investment, how much will you pay for the company's stock today?

  Assume that the risk-free rate is 6 percent and the

assume that the risk-free rate is 6 percent and the expected return on the market is 13 percent. what is the required

  Recommend at least two strategies an administrator can apply

Recommend at least two strategies an administrator can apply to ensure that the budget is performing according to the established performance indicators. Justify your response.

  Define moral hazard in a financial sense

Define moral hazard in a financial sense. What must be present for moral hazard to arise? Describe the moral hazard that occurred with the Great Recession.

  What are retained earnings for last year

Your company, Martin Industries, Inc., has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25% by spending $5,000,000 for an additional building.

  Computation of ratios for given financial data''s

Computation of ratios for given financial data's using Interest Coverage Ratio and Profit Margin

  Describe the volatility of currency

List the foreign currencies that the company Alliance Global Group Inc. has exposure and describe the volatility of each currency.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd