What is the difference between evergreen credit and

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Reference no: EM13500839

1.Which of the following companies are likely to have high short-term financing needs? Why?

a. A clothing retailer

b. A professional sports team

c. An electric utility

d. A company that operates toll roads

e. A restaurant chain

2.Sailboats Etc. is a retail company specializing in sailboats and other sailing-related equipment. The following table contains financial forecasts as well as current (month 0) working capital levels. During which months are the firm’s seasonal working capital needs the greatest? When does it have surplus cash?

3.What is the difference between permanent working capital and temporary working capital?

4.Quarterly working capital levels for your firm for the next year are included in the following table. What are the permanent working capital needs of your company? What are the temporary needs?

5.Why might a company choose to finance permanent working capital with short-term debt?

6.The Hand-to-Mouth Company needs a $10,000 loan for the next 30 days. It is trying to decide which of three alternatives to use:

Alternative A: Forgo the discount on its trade credit agreement that offers terms of 2/10, Net 30.

Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 30 days at an APR of 12%. The fee, which means Hand-to-Mouth must borrow even more than the $10,000.

Alternative C: Borrow the money from Bank B, which has offered to lend the firm $10,000 for 30 days at an APR of 15%. The loan has a 1% loan origination fee.

Which alternative is the cheapest source of financing for Hand-to-Mouth?

7.Consider two loans with a 1-year maturity and identical face values: an 8% loan with a 1% loan origination fee and an 8% loan with a 5% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate? Why?

8.What is the difference between evergreen credit and a revolving line of credit?

9.Which of the following one-year $1000 bank loans offers the lowest effective annual rate?

a. A loan with an APR of 6%, compounded monthly

b. A loan with an APR of 6%, compounded annually, that also has a compensating balance requirement of 10% (on which no interest is paid)

c. A loan with an APR of 6%, compounded annually, that has a 1% loan origination fee

10.The Needy Corporation borrowed $10,000 from Bank Ease. According to the terms of the loan,Needy must pay the bank $400 in interest every three months for the three-year life of the loan,with the principal to be repaid at the maturity of the loan. What effective annual rate is Needy paying?

Reference no: EM13500839

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