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Which of the following financial decisions can impede the achievement of organisational objectives?
A. Investing short-term cash surpluses
B. Rewarding equity holders appropriately
C. Protecting the organisation against financial risks
D. Financing long-term expenditure with short-term sources of funds
E. Maintaining a balance between long-term and short-term finance
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Kaki Limited needs to finance a seasonal bulge in inventories of GH¢400,000. The funds are needed for six months. The company is considering the following possibilities:
i) Warehouse loan received from a finance company. Terms are 12 percent with an 80 percent advance against the value of the inventory. The warehousing costs are GH¢7,000 for the six-month period. The residual financing requirement, which is GH¢400,000 less the amount advanced, will need to be financed by foregoing cash discounts on its payables. Standard terms are 2/10, net 30. However, the company feels it can postpone payment until the fortieth day without adverse effect.
ii) A floating lien arrangement from the supplier of the inventory at an effective interest rate of 20 percent. The supplier will advance the full value of the inventory.
iii) A field warehouse loan from another finance company at an interest rate of 10 percent. The advance is 70 percent, and field warehousing costs amount to GH¢10,000 for the six-month period. The residual financing requirement will need to be financed by foregoing cash discounts on payables as in the first alternative.
Required:
Evaluate the feasible method of financing the inventory needs of the firm.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Which of the following financial decisions can impede the achievement of organisational objectives?
A. Investing short-term cash surpluses
B. Rewarding equity holders appropriately
C. Protecting the organisation against financial risks
D. Financing long-term expenditure with short-term sources of funds
E. Maintaining a balance between long-term and short-term finance
Find Related Questions by Tags, levels, etc.
Kaki Limited needs to finance a seasonal bulge in inventories of GH¢400,000. The funds are needed for six months. The company is considering the following possibilities:
i) Warehouse loan received from a finance company. Terms are 12 percent with an 80 percent advance against the value of the inventory. The warehousing costs are GH¢7,000 for the six-month period. The residual financing requirement, which is GH¢400,000 less the amount advanced, will need to be financed by foregoing cash discounts on its payables. Standard terms are 2/10, net 30. However, the company feels it can postpone payment until the fortieth day without adverse effect.
ii) A floating lien arrangement from the supplier of the inventory at an effective interest rate of 20 percent. The supplier will advance the full value of the inventory.
iii) A field warehouse loan from another finance company at an interest rate of 10 percent. The advance is 70 percent, and field warehousing costs amount to GH¢10,000 for the six-month period. The residual financing requirement will need to be financed by foregoing cash discounts on payables as in the first alternative.
Required:
Evaluate the feasible method of financing the inventory needs of the firm.
Find Related Questions by Tags, levels, etc.
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