Convincing Features
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Question 4
Indah Bayu Sdn Bhd needs to raise RM750, 000 in short term loan for five months. The company has the following alternatives to choose from:
Alternative 1
Forego trade credit with the credit terms of 3/15, net 60.
Alternative 2
A line of credit of RM950,000 with 5% commitment fee on the unused fund, and an 8% stated interest rate.
Alternative 3
Issue commercial paper with a face value of RM150,000 each at 15% per annum. The issuing cost is RM4,000 per paper. (1 year= 360 days)
Alternative 4
To obtain a loan from DXD BANK at a discounted interest rate of 7% per annum and a 12% compensating balance. The present account balance in the company is RM25, 000.
i. Compute the effective interest rates of the above financing alternatives (16 marks)
ii. Which is the best financing alternative should Indah Bayu Sdn Bhd choose? Why?
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