Maurice Tutor

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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 21 Jan 2018 My Price 8.00

Sunny Coast Enterprises

Sunny Coast Enterprises (B). Sunny Coast Enterprises has been approached by a factor that offers to purchase the Hong Kong Media Imports receivable at a 16% per annum discount plus a 2% charge for a non-recourse clause.

a. What is the annualized percentage all-in cost of this factoring alternative?

b. What are the advantages and disadvantages of the factoring alternative compared to the alternatives in Problem 7?

Problem 7

Sunny Coast Enterprises (A). Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorporated for US$100,000, with payment due in six months. Sunny Coast Enterprises has the following alternatives for financing this receivable: 1) Use its bank credit line. Interest would be at the prime rate of 5% plus 150 basis points per annum. Sunny Coast Enterprises would need to maintain a compensating balance of 20% of the loan’s face amount. No interest will be paid on the compensating balance by the bank. 2) Use its bank credit line but purchase export credit insurance for a 1% fee. Because of the reduced risk, the bank interest rate would be reduced to 5% per annum without any points.

a. What are the annualized percentage all-in costs of each alternative?

b. What are the advantages and disadvantages of each alternative?

c. Which alternative would you recommend?

Answers

Maurice Tutor
(5)
Status NEW Posted 21 Jan 2018 06:01 PM My Price 8.00

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