[nalratoss]

SU 10 workin capital II short term financing
SU 10.5 short term financing

This actually gives me headache. This is actually bonds coupled with the opportunity cost mixed with time. But they try to complicate it by mixing discounting and compensating balance when you attempt to figure out the actual usable fund.

First the spontaneous financing equation I have no idea why that equation gives me cost of not taking discount. I hate mechanically memorizing equations. If I don’t understand why an equation is written like that, most likely I will have a hard time knowing it by heart.

Then the simple interest short term loans, discounted loans, loans with compensating balance actually makes sense. This part isn’t difficult to understand. But when I do MCQ they mix these concepts together and I began to lose track. I tried the questions at the end of the SU 10.5. Oh boy I pretty much unable to answer any of them.

I’m so glad I’m approaching IT

[nalratoss]

Oh by the way, I’m taking aUD and BEC together. Someone asked me about aud, no I haven’t taken it.

Hence why I’ve been so hardcore in studying. I need a month to final review both

[nalratoss]

Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 days at 11% per annum plus a 9% compensating balance.

Skilantic fails to take the discount and pays on the 40th day. Assuming a 360-day year, what effective rate of annual interest does it pay the vendor?
A 2%
B 24%
C 24.79%
D 36.73%

lol even reading the answer key I have no idea what “borrowing 58,800 for 30 days mean”. He didn’t take discount so he should borrow 60,000 full amount instead of 58,800 discounted amount right? At a cost of 1,200? What is the cost and where did this number come from?

[Shawn]

I don't know if this will help but,

He will borrow the amount needed to cover the invoice assuming he will take the discount.

He will borrow the $58,800 he needs, since he did not take the discount he just borrowed $58,800 for 30 days.

Then since he did not take the discount, it cost him (60,000 *.02) $1200 to borrow it for 30 days. This will result in a rate of (1200/58800) = 2.04%

Then to get the effective annual rate you will take the 30 day rate of 2.04% and times it by 360 days divided by the 30 day period.

2.04 * (360/30) = 24.49%

[fblessed777]

@nalratoss, You may use the formula for not using the discount rate:
(Disc.% / 100% – Disc.%) * (360/Pay period – Disc. period)
(2%/98%) * (360/40-10) = 0.0204% * 12 = 24.49%

[rencpa]

@Shawn,

Which studying material do you use? I would have used the formula, but I also like the way you solved the problem.

[Shawn]

@rencpa,

Gleim

[sacpa]

Here's a question on the same topic.
If the borrowed amount is $50,000, coupon rate is 6% & effective rate is 7.5%, what is the compensating balance?

FAR - < than 75, 10/2013, 2/2015
BEC - < than 75, 10/2013
AUD - < than 75, 8/2015, 1/2016

~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
~ I survived because the fire inside burned brighter than the fire around me.
~ Something will grow from all you are going through. And it will be YOU.
~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

[sacpa]

@nalratoss: Do practice quizzes for each sub unit. Then you can focus on just that. As your scores improve, move on next sub unit. I did the same when I was struggling with variance & then it made sense when I tackled one complicated subunit at a time.

FAR - < than 75, 10/2013, 2/2015
BEC - < than 75, 10/2013
AUD - < than 75, 8/2015, 1/2016

~ Winners fail until they succeed. Losers quit when they fail. - Robert Kiyosaki
~ I survived because the fire inside burned brighter than the fire around me.
~ Something will grow from all you are going through. And it will be YOU.
~ Right now you may not be where you intend to be, but it's where you need to be in order to get where you want to go.

[Williams]

Yeah this actually isn't to bad. First, you need to memorize all of those random formulas that's in the gleim section of this book. Then go through the MCQ for this unit, probably will get most wrong. Review the exam and you will see that the questions only give you enough information for one formula to be applicable. Once you take a second quiz you should score above a 80%. Read the question and see which formula applies and use it. As far as actually understanding the logic behind the formulas is beyond my understanding lol but I get near perfect scores on this section of gleim's review just by memorizing the formulas.

[Author]

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