Burlap Ltd manufactures burlap sacks for the transport of maize on a very large scale and...
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Burlap Ltd manufactures burlap sacks for the transport of maize on a very large scale and the company has experienced volatile short-term funding requirements over the past year. The management of the company wishes to change the way it funds its short-term funding requirements of R10 000 000. Currently, the company has an estimated long-term borrowing cost of 3% (variable) and access to a short-term facility at a cost of 3.5% capped at R3 000 000 and a revolving credit facility of R7 000 000 at a rate of 4%. The management of the company has further determined that its permanent funding requirements are 70% of its total short-term funding requirement. The management also decided that R1 000 000 of capacity on either the short-term facility or revolving credit should be left unused and kept in reserve for emergency use. It was recently discussed at a management meeting that the company should change from its current aggressive short-term financing plan as it has run out of capacity more than once over the past year. Consequently, costly quick access to short-term loans had to be arranged to make up the shortfall. REQUIRED: Determine the least costly approach the company could take to finance its short-term financing needs. Then, briefly discuss the advantages and disadvantages of this approach compared to the current approach followed by Burlap Ltd. Burlap Ltd manufactures burlap sacks for the transport of maize on a very large scale and the company has experienced volatile short-term funding requirements over the past year. The management of the company wishes to change the way it funds its short-term funding requirements of R10 000 000. Currently, the company has an estimated long-term borrowing cost of 3% (variable) and access to a short-term facility at a cost of 3.5% capped at R3 000 000 and a revolving credit facility of R7 000 000 at a rate of 4%. The management of the company has further determined that its permanent funding requirements are 70% of its total short-term funding requirement. The management also decided that R1 000 000 of capacity on either the short-term facility or revolving credit should be left unused and kept in reserve for emergency use. It was recently discussed at a management meeting that the company should change from its current aggressive short-term financing plan as it has run out of capacity more than once over the past year. Consequently, costly quick access to short-term loans had to be arranged to make up the shortfall. REQUIRED: Determine the least costly approach the company could take to finance its short-term financing needs. Then, briefly discuss the advantages and disadvantages of this approach compared to the current approach followed by Burlap Ltd.
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To determine the least costly approach for financing its shortterm funding needs Burlap Ltd should consider optimizing its borrowing mix to minimize c... View the full answer
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Understanding Cross Cultural Management
ISBN: 9781292015897
3rd Edition
Authors: Marie Joelle Browaeys, Roger Price
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