Bank Credit Line Assignment | Homework For You
Sunny Coast Enterprises (A). Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorporated for US$101,000, with payment due in five 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 4.8% plus 150 basis points per annum.
2) Use its bank credit line but purchase export credit insurance for a 0.9% fee. Because of the reduced risk, the bank interest rate would be reduced to 4.8% per annum without any points. In both cases Sunny Coast would need to maintain a compensating balance of 22% of the loans face amount, and no interest will be paid on the compensating balance by the bank.
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? (NOTE: Assume a 360-day year.)
a. What are the annualized percentage all-in costs of each alternative?
Alternative 1: Bank Credit Line The bank interest expense on the receivable is $ . (Round to the nearest cent.) Get Finance homework help today
