Table of Contents
CHAPTER 21 Short-Term Financing
Working Capital Financing Policies
Moderate Financing Policy
Conservative Financing Policy
What is short-term credit, and what are the major sources?
PPT Slide
Is there a cost to accruals? Do firms have much control over amount of accruals?
What is trade credit?
B&B buys $3,030,303 gross, or $3,000,000 net , on terms on 1/10, net 30, and pays on Day 40. How much free and costly trade credit, and what’s the cost of costly trade credit?
Gross/Net Breakdown
PPT Slide
Nominal Cost of Costly Trade Credit
Nominal Cost Formula (1/10, Net 40)
Effective Annual Rate (1/10, Net 40)
Commercial Paper (CP)
A bank is willing to lend B&B $100,000 for 1 year at an 8 percent nominal rate. What is the EAR under the following five loans?
Why must we use EAR to evaluate the alternative loans?
Simple Annual Interest, 1-Year Loan
Simple Interest, Paid Monthly
PPT Slide
8% Discount Interest, 1 Year
Discount Interest (continued)
Need $100,000. Offered loan with terms of 8% discount interest, 10% compensating balance.
Time Line Set-Up
1-Year Installment Loan, 8% “Add-on”
Installment Loan (continued)
PPT Slide
What is a secured loan?
What are the differences between pledging and factoring receivables?
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