Account Receivable Balance Outstanding Average Age of the Account Over the Last

Question

Account Receivable Balance Outstanding Average Age of the Account Over the Last Year

Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan. The current prime rate is 12.50 percent, and Capital charges 3.50 percent over prime to Charmin as its annual loan rate.

a. Determine the maximum loan for which Charmin Paper Company could qualify.

b.Determine how much one month’s interest expense would be on the loan balance determined in part a.

Explanation / Answer

I am assuming this as the data As I had solved this question before:

Account Receivable Balance Outstanding Average Age of the Account over the Last Year A $ 60,000 28 B 120,000 43 C 70,000 10 D 20,000 52 E 50,000 42 F 220,000 34 G 30,000 16 H 300,000 65 I 40,000 33 J 90,000 50 K 210,000 14 L 60,000 35.

Interest per month = P X (1+R/n)^n - P = 708,000 x (1+.16/12)^1 - 708,000 = $9,440.

Less than 30 Days Between 31-40 days Between 41-45 Days A $   60,000 F $   220,000 B $   120,000 C $   70,000 I $     40,000 E $     50,000 G $   30,000 L $     60,000 K $ 210,000 $ 370,000 $   320,000 $   170,000 90% financing $ 333,000 80% Financing $   256,000 70% Financing $   119,000 Maximum Total Loans $ 708,000

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