Questions from Corporate Finance

Q: Explain how trade credit allows firms to use their suppliers as sources

Explain how trade credit allows firms to use their suppliers as sources of short‐term funds.

Q: Why do firms hold cash?

Why do firms hold cash?

Q: What is float and why is it important to the firm?

What is float and why is it important to the firm?

Q: ABC Inc. currently grants no credit, but it is considering

ABC Inc. currently grants no credit, but it is considering offering new credit terms of net 30. As a result, the price of its product will increase by $2 per unit. The original price per unit is $50....

Q: Suppose that ABC Inc. (see Practice Problem 30) switches

Suppose that ABC Inc. (see Practice Problem 30) switches to 3/10 net 30 from net 30. It is 80 percent of customers will take advantage of the discount, while the remaining 20 percent will pay on day 3...

Q: EastShore Inc. has an ACP of 60 days and daily credit

EastShore Inc. has an ACP of 60 days and daily credit sales of $75,000. A factor offers a 60‐day accounts receivable loan equal to 90 percent of accounts receivable. The quoted interest rate is 10 per...

Q: ABC Inc. grants credit terms of net 25. It is

ABC Inc. grants credit terms of net 25. It is considering a new policy that involves more stringent credit terms: net 20. As a result, the price of its product will stay the same at $45. The expected...

Q: Calculate the effective annual cost of issuing 270‐day BAs at

Calculate the effective annual cost of issuing 270‐day BAs at a quoted rate of 5 percent with a face value of $10 million. The bank charges a 0.6 percent stamping fee.

Q: A firm engaged a one‐year, monthly pay, $

A firm engaged a one‐year, monthly pay, $100,000 line of credit at 9 percent plus a 0.25 percent commitment fee on the unused portion of the line. The firm used 75 percent of the line for the first ha...

Q: Calculate the effective annual cost of a one‐year $2

Calculate the effective annual cost of a one‐year $2‐million operating line of credit. The firm borrowed $1.2 million for the first four months of the year and reduced the loan amount to $500,000 for...