The expected boom in business in the coming period led the Baby Apple Company to decide...

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The expected boom in business in the coming period led the Baby Apple Company to decide to expand its operations. The expansion requires an increase of P500,000 in working capital, which the company is considering to finance through any of the following alternatives: 1. Pledge the accounts receivable The company's average accounts receivable is P625, 000 per month. A financier will lend 80% of the face value of the receivables at 10% interest per annum, payable on the maturity of the loan. 2. Issue P515, 000 of 3-month commercial paper to net P500, 000. New paper will be issued every 3 months. 3. Borrow from a commercial bank an amount that will net P500, 000 after deducting a compensating balance of 15% and interest of 5%. Use a 360-day year in all your calculations. a. The cost of alternative 1 is b. The cost of alternative 2 is The cost of alternative 3 is C. The expected boom in business in the coming period led the Baby Apple Company to decide to expand its operations. The expansion requires an increase of P500,000 in working capital, which the company is considering to finance through any of the following alternatives: 1. Pledge the accounts receivable The company's average accounts receivable is P625, 000 per month. A financier will lend 80% of the face value of the receivables at 10% interest per annum, payable on the maturity of the loan. 2. Issue P515, 000 of 3-month commercial paper to net P500, 000. New paper will be issued every 3 months. 3. Borrow from a commercial bank an amount that will net P500, 000 after deducting a compensating balance of 15% and interest of 5%. Use a 360-day year in all your calculations. a. The cost of alternative 1 is b. The cost of alternative 2 is The cost of alternative 3 is C.

Answer rating: 100% (QA)

a The cost of alternative 1 The amount to be borrowed is 80 of the face value of the receivables whi... View the full answer