Cost of foregoing discount 2 365 Cost 100-220 =0.3724or37.24%
Cost of Foregoing Discount 0.3724 or 37.24% 20 365 100 - 2 2 Cost = =
Stretching accounts payable ■ Advantage Firm has longer use of its cash Disadvantages Fees /charges may apply to late payment Cost of discounts foregone Damage to credit standing/reputation, which may lead to loss of credit facility
Stretching Accounts Payable ◼ Advantage ◼ Firm has longer use of its cash. ◼ Disadvantages ◼ Fees/charges may apply to late payment. ◼ Cost of discounts foregone. ◼ Damage to credit standing/reputation, which may lead to loss of credit facility
Short-term loans a Specific-purpose a Repaid by instalments Fixed period Fixed or floating interest rate
Short-term Loans ◼ Specific-purpose. ◼ Repaid by instalments. ◼ Fixed period. ◼ Fixed or floating interest rate
Bank overdraft a Relatively easy to obtain; flexible ■ At call ecured Variable interest rate -00o to 5% above the prime rate. Terms negotiated with bank Text p 560
Bank Overdraft ◼ Relatively easy to obtain; flexible. ◼ At call. ◼ Secured. ◼ Variable interest rate – 0% to 5% above the prime rate. ◼ Terms negotiated with bank. ◼ Text p. 560
Bills of exchange a a promise to pay the holder of the bill an agreed sum(the face value) on a certain date (the maturity date) a Liquid market within the Australian money market- negotiable instrument Discount securities Face values usually either $100 000 or $500 000
Bills of Exchange ◼ A promise to pay the holder of the bill an agreed sum (the face value) on a certain date (the maturity date). ◼ Liquid market within the Australian money market - negotiable instrument. ◼ Discount securities. ◼ Face values usually either $100 000 or $500 000