6.2: No Chapter
1. KTC =

KTC = Cost of Trade Credit.
CD = Cash Discount. CP = Credit Period. DP = Discount Period. 
2. EIR = 1}  EIR = Effective Interest rate.
R = Periodic Cost = n = Turn Over of Cost = 
3. KCP =  FV = Face Value.
SV= Sales Value. NSV = Net Sales Value. M.P = Maturity Period. 
4. EIR = 1}  EIR = Effective Interest rate.
R = Periodic Cost = n = Turn Over of Cost = 
Working Capital Financing
Bank Loan
1. KBL =  KBL = Cost of Bank Loan.
I = Interest. M.P = Maturity Period. 
2. EIR = 1}  EIR = Effective Interest rate.
R = Periodic Cost = n = Turn Over of Cost = 
3. EIR =  P = No of Annual Installment.
C = Amount of Interest Percent. N = Total Number of Installment. A = Amount of Loan. 
Working Capital Financing
Average Accounts Receivable & Account Receivable Trme over(AAR & ARTO)
Working Capital Financing
1. AAR =  AAR = Average Account Receivable.
ACS = Annual Credit Sales. ACP = Average Collection Period. 
2. ARTO = /  ARTO = Account Receivable Torn Over.
ACS = Annual Credit Sales. AAR = Average Account Receivable. ACP = Average Collection Period. 
 Table for calculation of Net Periodic Cost (NPA) :
Particular  Amount (Tk) 
Average Account Receivable (AAR)  **** 
() Reserve  **** 
Gross Advance  **** 
() Factoring Commission  **** 
Advance  **** 
() Interest  **** 
Net Periodic Advance (NPA)  **** 
Working Capital Financing
 Table for calculation of Net Periodic Cost (NPC) :
Particular  Amount (Tk) 
Factoring Commission  **** 
(+) Interest  **** 
Total Periodic Cost  **** 
() Savings from factoring
(1) Bad debt losses **** (2) Administrative expenses **** 
****
**** 
Net Periodic Cost (NPC)  **** 
Working Capital Financing
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6.2 – No Chapter
Part (B & C)
Working Capital Financing
( Cost of Trade credit ( KTC )
Ex 01. What is the cost of Trade credit in each of the following terms :
(a) 2/10, Net 20. (b) 1/10, Net 40. (c) 2/15, Net/ EOM. (d) 2/10, Net/ EOM.
(e) 3/20, Net 70 (Assume a 365 day year) (f) 2/15, Net 60 (Assume a 365 day year)
[ Ans : (a) 73.47%. (b) 12.12%. (c) 48.98% (d) 36.73% (e) 22.58% (f) 16.55% ]
Ex 02. Barkat Co extended credit facility for Tk 2,00,000 on terms of.
(a) 2/10, Net 40. (b) 1/10, Net 42. (c) 2.5/10, Net 30 EOM. (d) 2/15, Net30 EOM.
[ Ans : (a) 24.49%. (b) 12.12%. (c) 46.15% (d) 48.98% ]
Ex 03. Forgo cash discount granted on basis of 2/15, net 42’’ and pay on the final due date. Show cost of trade credit. [ Ans : 27.20% ]
Ex 04. Calculate the annual cost of foregoing a cash discount of 3% offered for payaout within 20 days if debtors normally pay after 45 days. ( Assume a 365 – day year)
[ Ans : 29.795% ]
Ex 05. A firm sells goods for Tk 10,00,000 on account in term 2/10,Net 30. If 30% customers accept cash discount offer how much profit will the business have to avoid before tax ? [Ans : 73.47%]
Working Capital Financing
Ex 06. Compute the cost of trade credit and effective interest rate (EIR) of not taking discount from the following.
(1) 3/20, Net 180. (2) 3/10, Net 50. (3) 2/12, Net EOM. (4) 3/10, Net EOM.
(5) 2/15, Net 40 (Assume a 365day year). (6) 2.5/20, net 60 (Assume a 365day year)
[ Ans : (1) KTC= 6.95%. EIR= 7.09%. (2) KTC= 27.84%. EIR=31.54%. (3) KTC=40.82%. EIR= 49.79%
(4) KTC= 55.67%. EIR=73.02% (5) KTC= 29.80%. EIR= 34.31%. (6) KTC= 23.40%. EIR= 25.99%. ]
Ex 07. If a firm buys under terms 2/10, net 30. and actually pays on 10 the days. What is the cost of free trade credit ? [ Ans : 0% ]
Ex 08. If a firm buys under terms 2/10, net 30 and pays on 30 the days. What is the cost of non free trade credit ? [ Ans : 36.74% ]
Ex 09. If a firm buys under 2/15, net 45 but actually pays on the 20 the days and still take discount. What is the cost of non free trade credit ? [ Ans : 29.39% ]
Ex 10. If a firm buys under 2/15, net 45 but actually pays on 60 days. What is the cost of non free trade credit ? [ 16.33%]
Working Capital Financing
Ex 11. You are purchasing furniture on terms of 1.5/ 10, net 60. If you are unable to pay by the 10 the days, what is the annual rate you are paying for trade credit if.
(a) You pay on the 20 the days and still take discount.
(b) You pay on the 40 the days. ( Assume a 365 day year) [ Ans : 0% (a) 13.71, (b) 18.53% ]
Ex 12. You are purchasing furniture on terms of 3/ 10, net 30. If you are unable to pay by the 10 the days, what is the annual rate you are paying for trade credit if.
(a) You pay on the 15 the days and still take discount. ( Assume a 365 day year)
(b) You pay on the 60 the days. [Ans: 0% (a) 75.25% (b) 22.27% ]
Ex13. A trader buys goods amounting Tk 50,000 on credit, the terms of credit are 3 /10, Net 30.
Required :
 The cost of trade credit.
 The amount payable on the 60 the day.
 The amount payable on the 30 day. [Ans: (a) 55.67% (b) 22.27% (c) 55.67% ]
Working Capital Financing
Ex14. A trader buys goods amounting Tk 90,000 on credit, the terms of credit are 2 /10, Net 60.
Required :
 The cost of trade credit.
 The amount payable on the 10 the day.
 The amount payable on the 30 day. [Ans: (a) 14.69% (b) 0% (c) 36.74% ]
Ex 15. Rakib Nurseries purchased seeds costing Tk 50,000. With terms of 3/15, net 30; EOM on January18. Flow much will the firm pay if it takes the cash discount ? What is the approximate cost of giving up the cash discount, using the simplified formula ?
[ Ans : 41.23%. ]
Ex16. Srijon Nurseries purchased seeds costing Tk 25,000. With terms of 2/18, net 30;EOM on January12. Flow much will the firm pay if it takes the cash discount ? What is the approximate cost of giving up the cash discount, using the simplified formula ?
Working Capital Financing
[ Ans : 24.49%. ]
Ex 17. Calculate the EIR from the following situations :
(a) Credit purchase Tk 2,00,000 terms 5/15, net 90.
(b) Credit purchase January 10, 2019 Tk 60,000. terms 2/10, net/ 30 EOM.
(C) Credit purchase Tk 50,000 terms 3/20, net 70.
[ Ans : (a) KTC = 25.26% EIR = 27.92% (b) KTC =18.37% EIR = 19.94% (c) KTC = 22.27% EIR = 24.52% ]
Ex 18. Calculate the EIR from the following situations :
(a) Credit purchase Tk 50,000 terms 2/10, net 40. ( Note : Assume a 365day year )
(b) Credit purchase January 15, 2018 Tk 80,000. terms 2/10, net/ EOM.
(C) Credit purchase Tk 70,000 terms 3/18, net 50. ( Note : Assume a 365day year )
[ Ans : (a) KTC= 24.84 %. EIR= 27.87%. (B) KTC= 21%. EIT= 23.11%. (C) KTC= 25.29%. EIR= 41.55%. ]
Working Capital Financing
cost of Commercial Paper ( KCP )
Ex 01. A Commercial paper with face value of Tk 100 each sold at Tk 98 for 60 days. What will be the cost of commercial paper. [ Ans : 12.24% ]
Ex 02. A Commercial paper with face value of Tk 100 each sold at Tk 85 for 90 days. What will be the cost of commercial paper ? ( Assume a 365day year ) [ Ans : 71.65% ]
Ex 03. A Commercial paper with face value of Tk 1,000, each sold at Tk 850 for 120 days. Cost of issue is Tk 50. What will be the cost of commercial papers. [ Ans : 56.25% ]
Ex 04. Rakib Commercial paper with face value of Tk 10,000 each sold at Tk 9,500 for 120 days. Cost of issue is Tk 500. What be the cost of commercial paper ? [ Ans :16.67% ]
Ex 05. Akhy Company sales commercial paper at Tk 95 of which face value of it Tk 100 for short term financing purpose. This paper is for 60 days. Calculate EIR.
[ Ans : KCP = 31.58% , EIR= 36.04% ]
Ex 06. Bithi Company sales commercial paper at Tk 90 of which face value of Tk 100 for short term financing purpose, This paper is for 120 days. Calculate EIR.
[ Ans :KCP= 33.33% , EIR= 37.17% ]
Ex 07. Issue Tk 44 lakh of sixmonth commercial paper to net 40 lakh. Calculate cost of commercial paper. [ Ans : 20% ]
Working Capital Financing
Ex 08. Issue Tk 40 Lakh of six month commercial paper to net 38 lakh. Calculate cost of commercial paper. [ Ans : 10.53 % ]
Ex 09. Korim Ltd. issue 120 days commercial paper with face value Tk 10,000 at sold at Tk 9,000. The credit rating expenses are 1% of the size of the issue and stamp duty is 2%. What is the cost of commercial paper ? [ Ans : 34.48% ]
Ex10. Rafi Ltd. issue 90 days commercial paper with face value of Tk 11,000 at sold at Tk 9,500. The credit rating expenses ate 1.5% of he size of the issue and stamp duty is 2% what is the cost of commercial paper ? (Assume a 365day year ) [ Ans : 67.07% ]
Ex 11. Rakib Company issues a 180 days commercial paper of a face value of Tk 1,000 at Tk 950. The credit rating expenses are 0.5% of the size of issue and paying agent charges 0.25% and stamp duty 0.5%.What is the cost of commercial paper ? [ Ans : 10.67% ]
Ex 12. Don Company issues a 120 days commercial paper of a face value of Tk 10,000 at Tk 9000.The credit rating expenses are 1.5% of the size of issue. and paying agent charges .5% and stamp duty 1%.What is the cost of commercial paper ? [ Ans : 34.48 % ]
Ex 13. Arif chemicals limited is considering raising of Tk 7,00,000 by issuing commercial paper for 120 days. Commercial paper will be sold at a discount of 9%, stamp duty charges will be. 1.50% of the size of issue. The issuing and other charges will amount of Tk 12,000 and rating charges to 0.50%of the issue size. Calculate effective cost of commercial paper. [ Ans : KCP= 30.93% ]
Working Capital Financing
Ex 14. Rafi chemicals limited is considering raising of Tk 9,00,000 by issuing commercial paper for 90 days. Commercial paper will be sold at a discount of 8%, stamp duty charges will be. 0.50% of the size of issue. The issuing and other charges will amount of Tk 13,500 and rating charges to 0.40%of the issue size. Calculate effective cost of commercial paper. [ Ans : 35.72% ]
Ex 15. Mony Ltd. has issued a commercial paper having a face value of Tk 5,000 redeemable after 120 days. The flotation cost of the paper is Tk 100 each and 10% interest payable in advance. Calculate EIR if.
 It is sold only one time.
 It is sold every 120 days. [ Ans : (a) 34.09% (b) EIR= 38.11% ]
Ex 16. Star Ltd. has issued a commercial paper having a face value of Tk 1,000 redeemable after 60 days. The flotation cost of the paper is Tk 100 each and 10% interest payable in advance. Calculate EIR if.
 It is sold only one time.
 It is sold every 60 days. [ Ans: (a) 75%. (b) 102.73% ]
( Cost of Bank Loan ( KBL )
Ex 01. Borrow from a Bank at 12% interest with 15% compensating balance requirement for a Loan of Tk 5,00,000 Calculate cost of Band Loan. [ Ans : 12.12% ]
Working Capital Financing
Ex 02. Borrow from a Bank at 14% interest with 10% compensating balance requirement for a Loan of Tk 7,00,000 Calculate cost of Band Loan. [ Ans : 15.56% ]
Ex 03. A Bank will Loan Tk 10,00,000 at 13% interest with 21% compensating balance requirements. Interest will be paid in advance. Calculate the cost. [ Ans : 19.70% ]
Working Capital Financing
Ex 04. A Bank will Loan Tk 15,00,000 at 15% interest with 20% compensating balance requirements. Interest will be paid in advance. Calculate the cost. [ Ans : 23.08% ]
Ex 05. Montaje Corporation has decided to take a 90 days loan of Tk 2,00,000 .Which is repayable on maturity at Tk 2,10,000. Calculate the effective interest rate.
[ Ans : KBL= 20% EIR= 21.55% ]
Ex 06. SONY Corporation has decided to take a 120 day Loan of Tk 5,00,000. Which is repayable on maturity at Tk 5,50,000. Calculate the effective interest rate.
[ Ans : KBL= 30% EIR= 33.10% ]
Ex 07. DEX. Ltd plans to borrow Tk 2,00,000. IFIC bank will lend the money at ½% Over the prime rate of 11. ½% ( Total 12% ) and requires a compensating balance of 20%. What is the effective rate of interest ? [ Ans : 15% ]
Ex 08. Lucky Ltd plans to borrow Tk 3,00,000 AB Bank will loan the money at ½ % over the prime rate of 11 ½ % ( Total 12% ) and requires a compensating balance of 10%. What is the effective rate of interest ? [ Ans : 13.33% ]
Ex 09.What is the EIR on each of the following loans.
 A on year Tk 2,00,000 loan at 12% interest prepaid. ( Assume a 365 – day year)
 A one year Tk 1,50,000 loan at 10% interest a Tk 6,000 compensating checking
account balance. [Ans: (a)KTC= 13.64%, EIR= 13.64%. (b)KTC= 10.42, EIR =10.42% ]
Working Capital Financing
Ex10.What is the EIR on each of the following loans.
 A on year Tk 300,000 loan at 14% interest prepaid.
 A one year Tk 2,50,000 loan at l2% interest a Tk 9,000 compensating checking
account balance. [Ans: (a)KTC= 16.28%, EIR= 16.28%. (b)KTC= 14.52%, EIR =14.52% ]
Ex11. A man borrowed Tk 90,000 From pubali Bank @ 15% interest per year. Compute the EIR of simple interest.
(a) Principal and Interest are repaid at maturity.
(b) Interest is paid after every 120 days period.
[ Ans : (a) KTC= 15%,EIR= 15% (b) KTC= 14.69%, EIR = 15.42% ]
Ex12. A man borrowed Tk 70,000 From pubali Bank @ 13% interest per year. Compute the EIR of simple interest.
(a) Principal and Interest are repaid at maturity.
(b) Interest is paid after every 90 days period.
[ Ans : (a)KTC= 13%, EIR=13% (b) KTC= 13.44% EIR= 14.13% ]
Working Capital Financing
Ex 13. You have taken a loan of Tk 30,000 from Rupali Bank at 12% interest on discount Rate, a it is a 3 months revolving credit. Calculate EIR. [ Ans : 12.37%, 12.956% ]
Ex 14. You have taken a loan of Tk 50,000 from Rupali Bank at 16% interest on discount Rate, a it is a 3 months revolving credit. Calculate EIR. [ Ans : 16.67% 17.74% ]
Ex 15. Rana Company Ltd want to borrow Tk 20,00,000 Lakh from Chartered Band at chittagon branch for one year period to meet the working capital requirement. The bank has given alternative.
(1) 12% interest with no compensating balance.
(2) 10% interest with 10% compensating balance.
(3) 15% interest rate and Bank deducts interest in advance.
(4) 14% interest rate with 20% compensating balance and Bank deduct interest in advance.
(5) 10% interest rate with monthly instalment.
Working Capital Financing
[Ans : (1) 12%, (2) 11.11%, (3) 17.65%, (4) 21.21% (5)18.46% ] Ex 16. Padma textile mills want to borrow Tk 7,50,000 from IFIC Band at chittagon branch for one year period to meet the working capital requirement. The bank has given alternative.
(1) 14% interest with no compensating balance.
(2) 12% interest with 10% compensating balance.
(3) 12% interest rate and Bank deducts interest in advance.
(4) 11% interest rate with 20% compensating balance and Bank deduct interest in advance.
(5) 10% interest rate with monthly instalment.
[ Ans : (1)14% (2)13.33% (3)13.94% (4)15.94% (5)18.46%]
Ex 17. Ruma Libray & Stationary borrow Tk 3,00,000 at 10% for on year. Calculate the EIR for the following payment plans. ( a) Annual payments. (b) Smiannual payments
(c) Quarterly payments. (d) Monthly payments. [ Ans : (a) 10%. (b) 13.33% (c) 16% (d) 18.46% ]
Working Capital Financing
Ex 18. Chandon Library & Stationary borrow Tk 2,00,000 at 9% for one year. Calculate the EIR for the following payment plans.
(a) Annual payments. (b) Semiannual payments. (c) Quarterly payments. (d) Monthly payments. [ Ans : (a) 9%. (b) 12% (c) 14.40% (d) 16.62% ]
 Average Accounts Receivable & Account Receivable Trme over
(AAR & ARTO)
Ex 01. Kamal Ltd annual credit sales 15,00,000 and average level of Account Receivable Tk 3,00,000. Calculate Account receivable Turnover. [ Ans : 5 Times ]
Ex 02. Runa company annual credit sales 20,00,000 and average level of Account Receivable Tk 5,00,000. Calculate Account receivable Turnover. [ Ans : 4 Times ]
Ex 03. Jalal Corporation sells goods on credit collection period 90 days. Assume on year 360 days. Calculate Account receivable Turnover. [ Ans : 4 Times ]
Ex 04. Jalal Corporation sells goods on credit collection period 120 days. Assume on year 365 days. Calculate Account receivable Turnover. [ Ans : 3.04 Times ]
Ex05. LIMA Ltd has an average Account receivable per year 1,50,000 and account receivable turn over 8 times. Calculate annual credit sales. [ Ans : 12,00,000 ]
Working Capital Financing
Ex06. Rakib Ltd has an average Account receivable per year 2,00,000 and account receivable turn over 7 times. Calculate annual credit sales. [ Ans : 14,00,000 ]
Ex07. Ruma Ltd has annual credit sales is Tk 10,00,000 and average collection period is 72 days. You are required to calculate.
 Average account receivable (b) Account receivable turnover.
[ Ans : (a)2,00,000 (b) 5 Times ]
Ex08. ABC Ltd has annual credit sales is Tk 7,00,000 and average collection period is 90 days. You are required to calculate.
 Average account receivable (b) Account receivable turnover.
[ Ans : (a)1,75,000 (b) 4 Times ]
Ex 09. ABC Ltd sales its goods Tk 7,50,000 on credit annually and average collection period is 60 days. The company is considering the factoring its receivables. A factor has agreed to advance UP to 80% of receivables of be factored at an interest of 13% . Factoring commission is 1.50% on the face value of receivables. You are required to calculate
Working Capital Financing
(a) The amount will get by the company in advance.
(b) Total annual cost of factoring.
(c) Effective interest rate of factoring. [ Ans: (a) NPA= 95,996 (b) NPC= 24,024 (c)EIR= 25.02% ]
Ex 10. Rakib Ltd sales its goods Tk 10,00,000 on credit annually and average collection period is 90 days. The company is considering the factoring its receivables. A factor has agreed to advance UP to 70% of receivables of be factored at an interest of 12% . Factoring commission is 2% on the face value of receivables. You are required to calculate
(a) The amount will get by the company in advance.
(b) Total annual cost of factoring.
(c) Effective interest rate of factoring. [ Ans: (a) NPA= 1,64,900 (b) NPC= 40,400 (c)EIR= 24.50% ]
Ex 11. A factor will buy company’s accounts receivables ( Tk 2,00,000 per month ) And will advance at 12% percent interest per annum UP to 70% of the face value. Average collation period is 60 days. The factor will charge 2 percent commission. It has been estimated that the factor’s service will save the company’s A/R administration cost of Tk 2,000 per month and 1 percent bad debt loss. Determine cost of A/R factoring.
[Ans : NPC= 32,640, EIR= 12.24% ] Ex12. A Factor will buy companies accounts receivable of Tk 1,00,000. P.M which have an average colleciton period of 60 days. The factor will advance UP to 75% of the loan @ 8% interest. The factor will also charge 2% commission. It is estimated that the factor service will save bad debt loss of 1,500 per month. What is the EIR? [ Ans: 12.25% ]
Working Capital Financing
Ex 13. Jahir Company annual credit sales is Tk 25,00,000 and average A/R is Tk 5,00,000 . Average collection period is 72 days. The company is considering to take loan against the accounts receivable at 16% nominal interest rate UP to 85% of the face value of accounts receivables.
(a) Amount of advances
(b) What is the EIR? [ Ans: (a) 4,11,400 (b) 16.53% ]
Ex 14. Pran Food Ltd. has and annual credit sales of Tk 50,00,00,000 and its average A/R balance is Tk 20,00,00,000. The company is considering taking loan from Rupali Bank Ltd pledging it’s A/R at 16% interest rate to meet working capital requirement. The bank requires 20% margin on the face value of A/R . Find out the total cost and effective interest rate on actual loan amount used. [ Ans : 2,56,00,000 EIR: 17.09% ]
Ex 15. A factor will buy the Co average A/R of Tk 18 lakh which has an average collection period of 60 days. The factor will advance UP to 75% of the face value of the A/R at 15% interest, The factor will also change 3% commission. It has been estimated that factoring will save annual administration expense of Th 6,000 and bad debt 1% Determine cost of A/R factoring. [ Ans: 23.76% ]
Working Capital Financing
Ex 16. A factor will buy the Co average A/R of Tk 9 lakh which has an average collection period of 40 days. The factor will advance UP to 80% of the face value of the A/R at 12% interest, The factor will also change 2% commission. It has been estimated that factoring will save annual administration expense of Th 5,000 and bad debt 1% Determine cost of A/R factoring. [ Ans: 17.32% ]
Ex17. Annual credit sale of Pran Ltd is Tk 18,00,00,000 and its average collection period is 180 days. past experience that the bad debt loss was 2% and collection and administration cost is Tk 12,00,000. The factor charges 2% commission and advances UP 70% at 12% interest. How much the company will get as advance and what is the amount of total cost and EIR of factoring the A/R? [ Ans : NPA = 5,75,28,000 NPC= 61,44,000 EIR= 10.68% ]
Ex18. Annual credit sale of Pran Ltd is Tk 15,00,00,000 and its average collection period is 120 days. past experience that the bad debt loss was 2.50% and collection and administration cost is Tk 10,00,000. The factor charges 3% commission and advances UP 90% at 15% interest. How much the company will get as advance and what is the amount of total cost and EIR of factoring the A/R? [ Ans : NPA = 4,13,25,000 , NPC = 62,75,000 , EIR = 15.18% ]
Working Capital Financing
Ex 19. Rakib Company,s monthly credit sales is Tk 2,00,000 and average collection period 60 days. The company is considering the factoring it,s receivable. A factor has agreed to advance UP to 70 of the face value at 12% interest p.a. The factor will also charge 2.5% commission. Factoring would save company,s .7% bad debt loss and administration cost of Tk 2,000 per month. Calculate net periodic cost. [ Ans : 51,600
Ex20. Haque Company,s monthly credit sales is Tk 1,50,000 and average collection period 72 days. The company is considering the factoring it,s receivable. A factor has agreed to advance UP to 75 of the face value at 15% interest p.a. The factor will also charge 2% commission. Factoring would save company,s .5% bad debt loss and administration cost of Tk 1,000 per month. Calculate net periodic cost.
[ Ans : NPC= 54,420 ]
Ex 21. A Company needs Tk 60,000 to meet working capital 10 requirement. It has the following three alternative sources :
 The company can buy Tk 60,000 materials on terms of 1/15,Net 45.
 A Bank will lend Tk 60,000 at 12% interest with 15% compensating balance requirement.
 A facor will buy company,s accounts receivables ( Tk 60,000 per month ) and will advance at 14% interest Up to 85% efface value. Average collection period is 30 day. The factor will charge 2.5% commission. It has been estimated that the factor service will save the company,s A/R administration cost of Tk 800 per month and 1.5% bad debt loss. [Ans : (a) 12.12% (b) 14.12% (c) 15.46% ]
Working Capital Financing
Ex 22. (a) The Co can buy raw materials of Tk 50,000 permonth on 2/20/Net 80
discounts cost of A/R factoring.
(b) Bank loan of Tk 1,00,000 can be taken at 10% with 20% compensating balance.
(c) A Factor will buy companies accounts receivable of Tk 1,00,000. P.M which have an average colleciton period of 60 days. The factor will advance UP to 75% of the loan @ 8% interest. The factor will also charge 2% commission. It is estimated that the factor service will save bad debt loss of 1,500 per month. Which alternative should the company select and why ? [ Ans: (a) 12.24% (b) 12.50% (c) 12.25% ]
Ex 23. The Zereef wasit corporation has just acquired a large account. As a result, it will soon need an additional Tk 95,000 in working capital. It has been determined that there are there feasible sources of funds :
 Trade credit : TheZereef wasit Corporation buys buys about Tk 50,000 of materials per month on terms of 3/30. N/ 90. Discounts are taden.
 Bank loan : The firm’s bank will loan Tk 1,06,000 at 13% Interest. A 10% Compensation balance is required.
 Factoring : A factor will buy companies receivables (Tk 1,50,000 per month), which have an average collection period of 30 days. The factor will advance UP to 75% of the face value of the receivables at 12% on an annual basis. The factor will also charge a 2% fee on all receivables purchased. The has been estimated that the factor’s services will save the company Tk 2,500 per month consisting of both credit department expenses and baddebt expenses. Which alternative should Zareef wasit Corporation select on the basis of annualized percentage cost ?
Working Capital Financing
Require : (1) Calculate the annual interest rate of all alternatives.
(2) Calculate the effective annual interest rate of all alternatives.
(3) What mode of financing should be accepted by the company ?
[Ans: (a) 18.56%.,EIR= 20.05% (b) 14.14%. EIR= 14.44(c) NPA= 1,08,405. NPC = 19,140. EIR = 17.66 ]
Ex 24. A company needs Tk 50,000 to meet working capital requirement. It has three alternative sources:
 The company can buy Tk 1,00,000 of materials on terms of 2/30, Net 80.
 A bank loan Tk 1,00,000 at 13 percent interest rate with 20% compensating balance requirement.
 A factor will buy company’s accounts receivables ( Tk 1,00,000 per month ) and
 will advance at 12 percent interest p.a UP to 80 percent of the face value. Average collection period is 60 days. The factor will charge 2 percent commission. It has been estimated that the factor’s service will save the company’s A/R administration cost of Tk 1,000 per month and 1 percent bad debt loss.
[ Ans : (a) 14.69%, (b) 16.25%, (c) 12.25%]
Working Capital Financing
Ex25. DBL company wants to raise working capital of Tk 10,00,000. It has the following alternative sources :
 Trade credit : credit purchase granted on terms of sales 2/10, net/30.
 Bank loan : Sonali Bank will leand Tk 10,00,000 at 10% annual rate with 20% compensating balance requirement.
 Commercial paper : Issuing commercial paper at face value of Tk 10,80,000, Sales value Tk 10,00,000 for 180 days period. Cost of issue is Tk 50,000 per issue.
Required :
 Determine effective annual rate of all alternatives.
 With alternative should be accepted by the company and why ?
[Ans : (1) 36.73%. EIR=43.86% (2) 12.50%.EIR= 12.50% (3) 16.84% EIR= 17.55% ]
Ex 26. Lotus Co Let. needs working capital of Tk 5,00,000. Thre are three alternative methods of financing :
 The forgo cash discount granted on the basis 3/10, net / 60.
 The Co. has a revolving credit of Tk 5,00,000 at an interest of 13% with Sonali Bank. It average borrowing was Tk 3,00,000 for the year. A commitment fee of 2.5% is to be paid. Compute EIR.
 The Co. issue a 120 days commercial paper of a face value of Tk 5,00,000 and its sales value Tk 4,50,000. The credit rating expense are 0.5% of the size of issue agent charges being 0.25% and stamp duty 0.5. What is the cost of commercial paper ? Which alternative should the company choose ? and Why ?
[ Ans: (1) 22.27% (2) (3) 33.80% ]
Working Capital Financing
Ex 27. A company need Tk 8,00,000 to meet its working capital requirements and considering the following alternative sources :
 The company by a Tk 10,00,000 of raw materials under 3/30, net/90.
 A Bank will lend Tk 10,00,000 at 13% with 20% compensating balance Interest to be paid in advance
 Issue commercial paper of Tk 10,00,000 for six month period and net sales value
is Tk 9,50,000. [Ans : (1) 18.56%. (2) 19.40%. (3) 10.53% ]