question archive 1) A firm has directly placed an issue of commercial paper that has a maturity of 60 days
1) A firm has directly placed an issue of commercial paper that has a maturity of 60 days
Subject:FinancePrice:9.82 Bought3
1) A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issue sold for P980,000 and has an annual interest rate of 12 percent. The value of the commercial paper at maturity is
- Coral Company borrowed P100,000 for six months from the bank. The rate is prime plus 1 percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months. This was the only change. How much interest must Coral Company corporation pay?
- The Teal Company has a revolving line of credit of P300,000 with a one-year maturity. The terms call for 7% interest rate and a 1/2 percent commitment fee on the unused portion of the credit line. The average loan balance during the year was P100,000. The annual cost of this financing arrangement is
- Cyan Company needs to borrow P300,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with a 10% interest rate subject to a 20% of loan compensating balance. Currently, Cyan Company has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will Cyan Company need to borrow?
- The Victory Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is P150 per order. The firm uses the chemical at a constant rate throughout the year. It takes 18 days to receive an order once it is placed. The reorder point is (Operating days is 360/year)
- The Shing Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 60 cents per gallon per year, and the cost of ordering the chemical is P150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's economic order quantity is
- King Corporation uses about 200,000 yards of a particular fabric each year. The fabric costs P25 per yard. The current policy is to order the fabric four times a year. Incremental ordering costs are about P200 per order, and incremental carrying costs are about P0.75 per yard, much of which represents the opportunity cost of the funds tied up in inventory. How much total annual costs are associated with the current inventory policy?
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1. Commercial Paper Cost = 980,000 $ Interest till maturity period = 980,000 X 12 / 100 X 60 / 360 = 19,992 $ Hence,the value of the commercial paper at maturity (including interest component) = 980,000 $ + 19,992 $ = 999,992 $ (rounded off to $1,000,000)
2. 100000*.105*2/12+100000*.11*4/12 = 5417
4. Loan compensating balance means minimum amount that is to be maintained in the account i.e in the given problem is 20%% on outstanding balance of loan; Hence, the amount need to be borrowed is as follows:
20% loan compensating balance means, $20 is loan compensating balance for an outstanding loan of $ 100; hence, we borrow only $80; So to borrow $ 300,000, how much should be the loan outstanding amount?
Loan outstanding amount will be =
Hence, to borrow $ 300,000; total loan outstanding will be $ 362,500; Of this 80% borrowal amount is $300,000.
Hence, total they need to borrow $ 362,500 to avail a loan of $250,000
5. Annual demand = (150,000 * 12) = 1,800,000
Ordering Cost = $150
Holding Cost = $0.5
EOQ = Sqrt((2 * 1,800,000 * 150) / 0.5) = 32863.35 = 32863 gallons
6. Calculation of Economic Order Quantity
Economic Order Quantity = [(2 X Annual demand X Ordering Cost per order)/ Carrying cost per unit per annum]1/2
= [(2 X 150,000 gallons X 12 months X $ 150 per order)/ $ 0.6 per gallon per annum]1/2 = 30,000
