Global Markets, Inc. was experiencing a shortage of cash.Consequently, the President was considering two...

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Accounting

Global Markets, Inc. was experiencing a shortage of cash.Consequently, the President was considering two options to providean immediate inflow of cash.

The first option was to sell $2 million of the company's accountsreceivable on a nonrecourse basis. The factoring cost would amountto 15.5 percent of the value of the factored receivables.
The second option was to obtain a 60-day loan from a local bankusing its outstanding receivables as collateral. Under the loanagreement, Global Markets would be charged 13 percent annualinterest on the outstanding loan and would pledge receivables equalto 122 percent of the loan amount (a loan-to-value ratio of 82percent).

Required Compare the cost under each financing option.
Factoring agreement (first option)
Increase in cash (in millions, rounded to two decimalplaces) $Answer million
Financing expense (rounded to the nearest dollar) $Answer
Reduction in accounts receivable (in millions, rounded to twodecimal places) $Answer million
Pledging agreement (second option)
Hint - Assume that the company elects to borrow$169,0000 instead and that the bank loan was outstanding for 60days.
Increase in cash (in millions, rounded to two decimalplaces) $Answer million
Increase in bank loan payable (in millions, rounded to twodecimal places) $Answer million
Receivables pledged to bank (in millions, rounded to twodecimal places) $Answer million
Financing costs (interest costs) (rounded to the nearestdollar) $Answer

Which option is best for the company?
Which option has the highest financing expense? AnswerFactoringagreementPledging agreement
How much higher are the financing expenses under thisoption? $Answer
If the expected bad debt expense on the $2M accounts receivableis $290,000
which option is likely a better alternative? Answer

Answer

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Factoring agreement Particulars Amount Increase in cash 169000000 Accounts receivable balance 200000000 Less Factoring expenses 2000000 x 155 31000000 Account receivable balance after factoring 169000000 See Answer

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In: AccountingGlobal Markets, Inc. was experiencing a shortage of cash.Consequently, the President was considering two options...Global Markets, Inc. was experiencing a shortage of cash.Consequently, the President was considering two options to providean immediate inflow of cash.The first option was to sell $2 million of the company's accountsreceivable on a nonrecourse basis. The factoring cost would amountto 15.5 percent of the value of the factored receivables.The second option was to obtain a 60-day loan from a local bankusing its outstanding receivables as collateral. Under the loanagreement, Global Markets would be charged 13 percent annualinterest on the outstanding loan and would pledge receivables equalto 122 percent of the loan amount (a loan-to-value ratio of 82percent).Required Compare the cost under each financing option.Factoring agreement (first option)Increase in cash (in millions, rounded to two decimalplaces)$AnswermillionFinancing expense (rounded to the nearest dollar)$AnswerReduction in accounts receivable (in millions, rounded to twodecimal places)$AnswermillionPledging agreement (second option)Hint - Assume that the company elects to borrow$169,0000 instead and that the bank loan was outstanding for 60days.Increase in cash (in millions, rounded to two decimalplaces)$AnswermillionIncrease in bank loan payable (in millions, rounded to twodecimal places)$AnswermillionReceivables pledged to bank (in millions, rounded to twodecimal places)$AnswermillionFinancing costs (interest costs) (rounded to the nearestdollar)$AnswerWhich option is best for the company?Which option has the highest financing expense?AnswerFactoringagreementPledging agreementHow much higher are the financing expenses under thisoption?$AnswerIf the expected bad debt expense on the $2M accounts receivableis $290,000which option is likely a better alternative?AnswerAnswer

Factoring agreement (first option)
Increase in cash (in millions, rounded to two decimalplaces)	$Answer	million
Financing expense (rounded to the nearest dollar)	$Answer
Reduction in accounts receivable (in millions, rounded to twodecimal places)	$Answer	million

Pledging agreement (second option)
Hint - Assume that the company elects to borrow$169,0000 instead and that the bank loan was outstanding for 60days.
Increase in cash (in millions, rounded to two decimalplaces)	$Answer	million
Increase in bank loan payable (in millions, rounded to twodecimal places)	$Answer	million
Receivables pledged to bank (in millions, rounded to twodecimal places)	$Answer	million
Financing costs (interest costs) (rounded to the nearestdollar)	$Answer

Which option has the highest financing expense?	AnswerFactoringagreementPledging agreement
How much higher are the financing expenses under thisoption?	$Answer
If the expected bad debt expense on the $2M accounts receivableis $290,000
which option is likely a better alternative?	Answer Answer