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Paymaster Enterprises

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Paymaster Enterprises has arranged to finance its seasonal​ working-capital needs with a​ short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance​ (discounted). In​ addition, Paymaster must maintain a minimum demand deposit with the bank of 11 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow ​$90,000 for a period of 6 ​months, what is the annualized cost of the bank​ loan?

The annualized cost of the bank loan is ______​%. ​(Round to two decimal​ places.)

 
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Carraway Seed Company

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Carraway Seed Company Inc. has for many years cultivated and sold what are known as heritage plants and seeds. For​ example, the company has sought out older varieties of tomato plants that are no longer grown by commercial vegetable farmers since they either take too long to​ mature, do not ship​ well, or do not hold up for long on the store shelf. The company has recently been considering ways to reduce its investment in working capital in order to make itself more profitable. At present the firm has an inventory conversion period of 82 days and the majority of its customers take advantage of its credit terms of 40 days. The company purchases its inventory items on credit terms that allow them 51 days to pay but has always followed a policy of making cash payments for invoices as soon as they are​ received, so the accounts payable deferral period is typically only 11 days.

a.  What are​ Carraway’s operating and cash conversion​ cycles?

b.  If Carraway were to decide to take full advantage of its credit terms and delay payment until the last possible​ date, how would this impact their cash conversion​ cycle?

c.  What would be your recommendation to the company with regard to its working capital management practices and​ why?

a.  ​Carraway’s operating cycle is ______ days. ​ (Round to the nearest whole​ number.)

 
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The R. Morin Construction Company

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The R. Morin Construction Company needs to borrow ​$100,000 to help finance the cost of a new ​$150,000 hydraulic crane used in the​ firm’s commercial construction business. The crane will pay for itself in one​ year, and the firm is considering the following alternatives for financing its​ purchase:

Alternative A.   The​ firm’s bank has agreed to lend the ​$100,000 at a rate of 12 percent. Interest would be​ discounted, and a 16 percent compensating balance would be required.​ However, the​ compensating-balance requirement is not binding on the firm because it normally maintains a minimum demand deposit​ (checking account) balance of ​$25,000 in the bank.

Alternative B.   The equipment dealer has agreed to finance the equipment with a​ 1-year loan. The ​$100,000 loan requires payment of principal and interest totaling ​$116,260.

a. Which alternative should Morin​ select?

b. If the​ bank’s compensating-balance requirement had necessitated idle demand deposits equal to 16

16 percent of the​ loan, what effect would this have had on the cost of the bank loan​ alternative?

a. The cost of Alternative A would be _____​%. ​(Round to two decimal​ places.)

 
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The Pyramid of Egypt and the Taj Mahal

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 identifying a common theme between The Pyramid of Egypt and the Taj Mahal and find a thematic connection. Explain your choice using specific examples from each work.

 
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