Chapter 3: 8DQ (page 247)
What are the advantages of commercial paper in comparison with bank borrowing at the prime rate? What is a disadvantage?
Commercial paper is advantageous as it has a low-interest rate as compared to borrowing from banks. The commercial paper is an unsecured source so it can be disadvantageous.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Antivirus Inc. expects its sales next year to be \(2,500,000. Inventory and accounts receivable will increase \)480,000 to accommodate this sales level. The company has a steady profit margin of 15 percent with a 35 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing
Discuss the relative use of credit between large and small firms. Which group is generally in the net creditor position, and why?
Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 6 percent of new sales, production and selling costs are 74 percent, and accounts receivable turnover is four times. Assume income taxes of 20 percent and an increase in sales of $65,000. No other asset build-up will be required to service the new accounts.
e. Given the income determined in part b and the investment determined in part d, should Henderson extend more liberal credit terms?
What advantages do compensating balances have for banks? Are the advantages to banks necessarily disadvantages to corporate borrowers?
What are the 5 Cs of credit that are sometimes used by bankers and others to determine whether a potential loan will be repaid?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
