Answer:
Charmin Paper Company
a. The maximum loan for which Charmin Paper Company could qualify is:
= $851,860
b. One month's interest expense on the loan balance determined in part a would be:
= $9,228.48
Explanation:
a) Data and Calculations:
Account Receivable Average Age of
Balance Outstanding the Account over the Last Year
A $ 60,800 22
B 168,000 43
C 78,300 19
D 24,300 55
E 58,900 42
F 238,000 39
G 30,400 16
H 374,000 72
I 41,400 32
J 96,500 58
K 292,000 17
L 67,700 37
Lending by Capital Financial Corporation:
Average age Percentage
<=30 days 90%
31-40 days 80%
41-45 days 70%
above 45 days 0%
<=30 days 90%
A $ 60,800 22
C 78,300 19
G 30,400 16
K 292,000 17
Total = $461,500 * 90% = $415,350
41-45 days 70%
B 168,000 43
E 58,900 42
Total = $226,900 * 70% = $158,830
31-40 days 80%
F 238,000 39
I 41,400 32
L 67,700 37
Total = $347,100 * 80% = $277,680
Total amount that Capital can extend = $851,860
Prime rate = 9.50%
Capital charges over prime = 3.50%
Total interest charge = 13%
Annual Interest expense = $110,742 ($851,860 * 13%)
One month's interest expense = $9,228.48 ($110,742/12)
