Financial Management case study 1 - Essay Example

Only on StudentShare

Extract of sample
Financial Management case study 1

The inflation component preserves the purchasing power of money (Ross, Westerfield, & Jaffe, 2005). Based on economic reports, a 2.5% inflation rate over the next 5 years would sufficiently account for inflation.
The second component of the interest rate is the credit risk. The interest rate offered to customers with poor credit worthiness is higher to compensate for the higher risk of lending to them (Weston, Besley, & Brigham, 1996). Based on the credit rate range established by the credit department, the best customer would be assigned a 1% credit rate.
The last component of the interest rate is the profit component. This component is the profit from financing activities of XYZ. Since Shanghai Winters is one of the best customers, this component is not applicable to it.
Notice that this interest rate is higher than the 8.0% going rate on a $70,000 five-year note receivable. The higher rate is to compensate for the credit risk of extending credit to such a customer. Also built inside the 8.0% is the profit component, which has not been charged to the best customers. ...
Download paper

Summary

A dollar now is worth more than a dollar in the future. This is the principle of the time value of money (Ross, Westerfield, & Jaffe, 2005). A note receivable in place of cash payments by customers for purchases essentially means that payments will be received later (Weston, Besley, & Brigham, 1996)…
Author : wolffvernon

Related Essays

case study: group management
3 pages (753 words) Essay
Management Fundamental Case Study
5 pages (1255 words) Case Study
Case Study on Financial Management
8 pages (2008 words) Essay
Financial Management Case
10 pages (2510 words) Essay
Strategic Financial Management Case Study
13 pages (3263 words) Case Study
International Management Case Study
4 pages (1004 words) Case Study
Got a tricky question? Receive an answer from students like you! Try us!