2. Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has suggested obtaining funds for a period…

2. Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has suggested obtaining funds for a period…

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2. Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has suggested obtaining funds for a period…
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2.
Hotwil Sdn. Bhd. facing a shortage of RM400,000 and the accountant has
suggested obtaining funds for a period of 6 months to improve the situation.
The following short-term sources of financing are available:
i.
ii.
Borrow from Bank Rimau with charges of 9.5 percent annual interest
and the loan are discounted.
Accept a loan from Berjaya Ltd. and the charge is at a discount rate of
9 percent. Hence, Berjaya requires a compensating balance of 11
percent.
iii. Acquire line of credit from CLSA Securities (M) Sdn Bhd with an amount
of RM400,000. The finance company charges at a 10.5 percent simple
interest. In addition, the finance company charges a commitment fee of
5 percent on the unused fund.
iv. Based on the information above, calculate the effective cost for each
alternative and choose the best sources of financing with a reason.

Expert Answer:

Answer rating: 100% (QA)

To calculate the effective cost of each financing option we need to take into account all the costs associated with each option The effective cost is
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