100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
FIN3702 Assignment 1 Due 6 September 2024 (Detail Answers) $2.77   Add to cart
Quickly navigate to
Preview
  2.  
  3. University Of South Africa
  4.  
  5. Working Capital Management

Exam (elaborations)

FIN3702 Assignment 1 Due 6 September 2024 (Detail Answers)
 17 views  1 purchase
  • Course
  • Working Capital Management
  • Institution
  • University Of South Africa
  • Book
  • Working Capital Management

Answers to all the Questions 1. Appropriate collateral for a loan secured under a floating inventory lien: 3. Drill presses (Generally, equipment like drill presses is more suitable for inventory liens than items like paper clips or file cabinets.) 2. Approximate annual interest rate on the co...

[Show more]

Preview 2 out of 6  pages

Document information

  • August 22, 2024
  • 6
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • fin3702 assignment 1 due 6 september 2024

Connected book

book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:

More summaries for

  • FIN3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (215721)- DUE 30 September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
  • FIN3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (215721)- DUE 30 September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
  • FIN3702 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024 (215721)- DUE 30 September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
All for this textbook (36)

Written for

  • University of South Africa
  • Working Capital Management
All documents for this subject (51)

Seller

avatar-seller
GeniusGears

Reviews received

Content preview

FIN3702

Assignment 1

Semester 2

Unique No:355803

DUE 6 September 2024

, Answers to all the Questions

1. Appropriate collateral for a loan secured under a floating inventory lien:

3. Drill presses (Generally, equipment like drill presses is more suitable for
inventory liens than items like paper clips or file cabinets.)

2. Approximate annual interest rate on the commercial paper:

To find the interest rate, use the formula: 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒 − 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒)𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 ×
365𝐷𝑎𝑦𝑠 𝑡𝑜 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦{𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒} = \𝑓𝑟𝑎𝑐{({𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒} −
{𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒})}{{𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒}} \𝑡𝑖𝑚𝑒𝑠 \
𝑓𝑟𝑎𝑐{365}{{𝐷𝑎𝑦𝑠 𝑡𝑜 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦}}𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒 − 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒) × 𝐷𝑎𝑦𝑠 𝑡𝑜 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦365

Here: 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 = (𝑅2,000,000 − 𝑅1,950,000)𝑅1,950,000 ×
36590 ≈ 0.11 𝑜𝑟 11%{𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒} = \
𝑓𝑟𝑎𝑐{(𝑅2,000,000 – 𝑅1,950,000)}{𝑅1,950,000} \𝑡𝑖𝑚𝑒𝑠 \𝑓𝑟𝑎𝑐{365}{90} \
𝑎𝑝𝑝𝑟𝑜𝑥 0.11 { 𝑜𝑟 } 11\%𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 = 𝑅1,950,000(𝑅2,000,000 −
𝑅1,950,000) × 90365 ≈ 0.11 𝑜𝑟 11%

𝟐. 𝟏𝟏%

3. Lenders recognize that by having an interest in collateral they can
reduce losses if the borrowing firm defaults:

3. therefore, lenders prefer to lend to customers from whom they are
able to require collateral.

4. Effective annual interest rate on the loan with a revolving credit
agreement:

The effective annual interest rate can be calculated by considering both
the interest rate and the commitment fee.

First, calculate the interest expense: 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑅100,000 × 7.5% =
𝑅7,500{𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡} = 𝑅100,000 \𝑡𝑖𝑚𝑒𝑠 7.5\% = 𝑅7,500𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 =
𝑅100,000 × 7.5% = 𝑅7,500

The commitment fee on the unused portion: 𝐶𝑜𝑚𝑚𝑖𝑡𝑚𝑒𝑛𝑡 𝐹𝑒𝑒 =
(𝑅200,000 − 𝑅100,000) × 1% = 𝑅1,000{𝐶𝑜𝑚𝑚𝑖𝑡𝑚𝑒𝑛𝑡 𝐹𝑒𝑒} =
(𝑅200,000 – 𝑅100,000) \𝑡𝑖𝑚𝑒𝑠 1\% = 𝑅1,000𝐶𝑜𝑚𝑚𝑖𝑡𝑚𝑒𝑛𝑡 𝐹𝑒𝑒 =
(𝑅200,000 − 𝑅100,000) × 1% = 𝑅1,000

Effective annual interest rate is: 𝑅7,500 + 𝑅1,000𝑅100,000 × 365365 ≈
8.0%\𝑓𝑟𝑎𝑐{𝑅7,500 + 𝑅1,000}{𝑅100,000}\𝑡𝑖𝑚𝑒𝑠 \𝑓𝑟𝑎𝑐{365}{365}\
𝑎𝑝𝑝𝑟𝑜𝑥 8.0\%𝑅100,000𝑅7,500 + 𝑅1,000 × 365365 ≈ 8.0%

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller GeniusGears. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $2.77. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

80796 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$2.77  1x  sold
  • (0)
  Add to cart