QUESTION $5$

a$)$ Cahaya Cinta Sdn Bhd is facing a financial shortage for this $7$ months period. They need to find RM$770,000$ to support their short term project. The company has the following financial alternatives. Compute the effective interest rate for each alternative.

i$)$ Borrow from Malaysia Islamic Bank on a discounted basis and pay $6\mathrm{.}5$ percent annual interest rate.

$(3$ marks$)$

ii$)$ Issue commercial paper with $7$ percent annual interest rate. Cost of issuing is RM$2,500$ each paper with a face value of RM$22,000.$

$(4$ marks$)$

iii$)$ Foregoing a trade credit with favorable term of $\frac{10}{50}$ net $100.$

$(2$ marks$)$

iv$)$ To obtain a revolving line of credit of RM$1,000,000$ from OCOD Bank with $6\mathrm{.}7$ percent annual interest rate for the used loan. Besides that, the company needs to pay a commitment fee of $6\mathrm{.}5$ percent on the unused loan.

$(5$ marks$)$

iv$)$ Identify the best alternative for Cahaya Cinta Sdn Bhd and provide reason.

$(2$ marks$)$

b$)$ State two reasons why maximization of shareholders wealth is an appropriate goal for an organization.

$(4$ marks$)$