Problem 8-12 Problem 8-27
Foundations of Financial Management
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Spreadsheet Templates by Block, Hirt and Danielsen
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Sources of Short-Term Financing
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Problem 8-12
Objective: Compensating balances
Student Name:
Course Name:
Student ID:
Course Number:
Logan Drilling Corp. plans to borrow $200,000 for one year. Northern National Bank will
lend the money at 10 percent interest and requires a compensating balance of 20 percent.
What is the effective rate of interest?
Foundations of Financial Management
Block, Hirt and Danielsen
Problem 8-12
Instructions
Enter formulas to complete the requirements of this problem.
Assumptions
Loan $200,000
Interest rate 10%
Compensating balance 20%
Effective rate of interest 12.50%
Solution
Problem 8-27
Objective: Accounts receivable financing
Student Name:
Course Name:
Student ID:
Course Number:
Charmin Paper Company sells to the 12 accounts listed below.
Average Age
Receivable of the
Balance Account over
Account Outstanding 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
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 8.5 percent, and Capital charges 3.5 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.
Foundations of Financial Management
Block, Hirt and Danielsen
Problem 8-27
Instructions
Enter data and formulas to complete the requirements of this problem.
a. Determine the maximum loan for which Charmin Paper Company could qualify.
Charmin Paper Company
0-30 days Amount
A$60,000
C70,000
G30,000
K210,000
Total 370,000
Loan % 90%
Loan $333,000
31-40 days Amount
F$220,000
I40,000
L60,000
Total $320,000
Loan % 80%
Loan $256,000
41-45 days Amount
Total $170,000
Loan % 70%
Loan $119,000
Solution