CASE: Merritt Enterprises needs P500,000.00 for its November expenses. Given the scenarios below, help Chan Enterprises decide from what source is best for the company to engage with to raise the said amount. Justify your answer. Scenario 1: Having a 1-year line of credit for P500,000.00 with a bank with a commitment fee of .6% and an interest charge of the used funds of 15%. Scenario 2: Issuing 2-month commercial paper at 10% interest since the funds are needed only for a month having the excess funds (P500,000.00) can be invested in 9% marketable securities for December. A .3% total transaction fee for the marketable securities is required.
CASE: Merritt Enterprises needs P500,000.00 for its November expenses. Given the scenarios below, help Chan Enterprises decide from what source is best for the company to engage with to raise the said amount. Justify your answer. Scenario 1: Having a 1-year line of credit for P500,000.00 with a bank with a commitment fee of .6% and an interest charge of the used funds of 15%. Scenario 2: Issuing 2-month commercial paper at 10% interest since the funds are needed only for a month having the excess funds (P500,000.00) can be invested in 9% marketable securities for December. A .3% total transaction fee for the marketable securities is required.
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:CASE:
Merritt Enterprises needs P500,000.00 for its November expenses. Given the
scenarios below, help Chan Enterprises decide from what source is best for the
company to engage with to raise the said amount. Justify your answer.
Scenario 1: Having a 1-year line of credit for P500,000.00 with a bank with a
commitment fee of .6% and an interest charge of the used funds of 15%.
Scenario 2: Issuing 2-month commercial paper at 10% interest since the funds are
needed only for a month having the excess funds (P500,000.00) can be invested in
9% marketable securities for December. A .3% total transaction fee for the
marketable securities is required.
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