$100 million at any time. The interest rate is 0.4 percent per month. In adition
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Question
$100 million at any time. The interest rate is 0.4 percent per month. In adition, 5% of the amount that you borrow:must be deposited in a non-interest bearing account (i.e. a compensating balance). Assume that your bank uses compound interest on its line of credit loans. What is the effective annual rate (EAR) on the loan? What is the APR on the loan? Which rate would the bank advertise-the APR or the EAR? lltl Ol Credit arrangement that allows you to borrow up to 21. Use the following financial statement information: Item Inventory Accounts Receivable Accounts Payable Credit Sales Cost of goods Sold Beginning $1,500 2,300 1,400 Ending S1.800 2,600 1.100 $18.250 $14,500 Calculate the inventory period The receivables period - 49 days. Calculate the operating cyele. In a very short sentence. interpret the result. unts payable period 31 days. Calculate the cash cycle. In a very short sentence, interpret the result. 22. A firm has an ave $10 on hand as minimum cash balance, and has a beginning cash balance for the first quarter of $20. Beginning receivables for the first quarter amount to S35. Sales for the rage collection period of 25 days. It has a policy of keeping at least nd guarters are expected to be $110 and $125. respectively, while purchas r's forecasted sales. The account payable period is 90 da ha first quarterExplanation / Answer
Answer:
Operating Cycle = Inventory Period + Receivable Period
Average Inventory = ($1,500 + $1,800) / 2
Average Inventory = 3,300 / 2
Average Inventory = $1,650
Inventory Period = 365 * Average Inventory / Cost of Goods Sold
Inventory Period = 365 * $1,650 / $14,500
Inventory Period = 42 days
Operating Cycle = 42 days + 49 days
Operating Cycle = 91 days
Company is completing 4 (365 / 91) operating cycles during the year
Cash Cycle = Operating Cycle - Accounts Payable Period
Cash Cycle = 91 days - 31 days
Cash Cycle = 60 days
Company is completing 6 (365 / 60) cash cycles during the year. The lesser number of days Cash cycle a company have, better it is.
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