$10.00 Gitman Chapter 15 Problem 18, pg 711: Accounts Receivable as collateral, cost of borrowingFound in Business: Finance
Chapter 1, # 0
Gitman Chapter 15 Problem 18, pg 711
Accounts Receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank's terms include a lending rate set at prime + 3% and a 2% commission charge. The prime rate currently is 8.5%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Software's effective annual rate of interest if it borrows $100,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-days year and a prime rate that remains at 8.5% during the life of the loan.)
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