INTEGRATIVE CASE 2

ENCORE INTERNATIONAL
by Grace D. Nacion

A. WHAT IS THE FIRM’S CURRENT BOOK VALUE PER SHARE?

Book value per share =

$ 60 , 000 , 000
Book value per share= =$ 24
2, 500 , 000

B. WHAT IS THE FIRM'S CURRENT P/E RATIO?

$ 40
P/E ratio= =6 . 4
$ 6 . 25

C. (1) WHAT ARE THE REQUIRED RETURN AND RISK PREMIUM FOR ENCORE STOCK USING THE CAPITAL ASSET PRICING MODEL,
ASSUMING A BETA OF 1.10?

ks = RF + [bj x (km - RF)] Required Return = 14.8%

= 6% + [1.10 x (14% - 6%)] Risk Premium = 8.80%
= 6% + 8.8%
= 14.8%

(2) WHAT ARE THE REQUIRED RETURN AND RISK PREMIUM FOR ENCORE STOICK USING THE CAPITAL ASSET PRICING MODEL, ASSUMING A

ks = RF + [bj x (km - RF)] Required Return = 16%

= 6% + [1.25 x (14% - 6%)] Risk Premium = 10%
= 6% + 10%
= 16%

(3) WHAT WILL BE THE EFFECT ON THE REQUIRED RETURN IF THE BETA RISES AS EXPECTED?
 As beta rises, the risk premium and required return also rise

IF THE SECURITIES ANALYSTS ARE CORRECT AND THERE IS NO GROWTH IN FUTURE DIVIDENDS, WHAT WILL BE THE VALUE PER SHARE O
D.
STOCK? (NOTE: BETA = 1.25.)

Zero Growth :

D1 $ 4 . 00
P 0= P 0= =$ 25
ks . 16

(1) IF JORDAN ELLIS’S PREDICTIONS ARE CORRECT, WHAT WILL BE THE VALUE PER SHARE OF ENCORE STOCK IF THE FIRM MAINTAINS A C
E.
6% GROWTH RATE IN FUTURE DIVIDENDS? (NOTE: BETA = 1.25.)

Constant Growth:

D1  $ 4 . 00×1 . 06 $ 4 . 24
P 0= P 0= = =$ 42. 40
 k s− g   . 16−. 06 . 10

(2) IF JORDAN ELLIS’S PREDICTIONS ARE CORRECT, WHAT WILL BE THE VALUE PER SHARE OF ENCORE STOCK IF THE FIRM MAINTAINS A C
8% GROWTH RATE IN DIVIDENDS PER SHARE OVER THE NEXT 2 YEARS AND 6% THEREAFTER? (NOTE: BETA = 1.25.)

Variable Growth Model: Present Value of Dividends

n
P 0 =∑ 
t=1
D 0 × 1 g 1  t
 1 k s  t

[ 1
 1k s N
×
D N 1
 k s− g 2  ]
Po = Present value of dividends during initial growth period + present value of price of stock at end of growth period.

Steps 1 & 2: Value of Cash Dividends and Present Value of Annual Dividends

Present Value
Year t D0 FVIF8%,t Dt PVIF 16%,t of Dividends

2004 1 $4.00 1.080 $4.32 0.86 $3.72

 2005 2 $4.00 1.17 $4.66 0.74 $3.46
$7.18

Step 3: Present Value of Price of Stock at End of Initial Growth Period

D2003 = $4.66 x (1 +.06) = $4.94 PV of Stock at the end of year 2 (2005)

P2005 = [D2006 ÷ (ks - g2)] PV = P2 x (PVIF16%,2yrs.)

= $4.94 ÷ (.16 - .06) = $49.40 x (.743)
= $49.40 = $36.70

Step 4: Sum of present value of dividends during initial growth period and present value price of stock at end of growth p

P2003 = $7.18 + $36.70

= $43.88

COMPARE THE CURRENT (2009) PRICE OF THE STOCK AND STOCK VALUES FOUND IN PARTS A, D, AND E. DISCUSS WHY THESE VALUES M
E.
VALUATION METHOD DO YOU BELIEVE MOST CLEARLY REPRESENTS THE TRUE VALUE OF THE ENCORE STOCK?

Valuation Method Per Share

Market Value $40.00

Book Value $24.00
Zero Growth $25.00
Constant Growth $42.40
Variable Growth $43.88

The book value has no relevance to the true value of the firm. Of the remaining methods, the most conservative estimate of value is give
growth model. Wary analysts may advise paying no more than $25 per share, yet this is hardly more than book value. The most optimis
variable growth model, results in a value of $43.88, which is not far from the market value. The market is obviously not as cautious abou
International's future as the analysts.
OICK USING THE CAPITAL ASSET PRICING MODEL, ASSUMING A BETA OF 1.25?
 FUTURE DIVIDENDS, WHAT WILL BE THE VALUE PER SHARE OF THE ENCORE

UE PER SHARE OF ENCORE STOCK IF THE FIRM MAINTAINS A CONSTANT ANNUAL

UE PER SHARE OF ENCORE STOCK IF THE FIRM MAINTAINS A CONSTANT ANNUAL

D 6% THEREAFTER? (NOTE: BETA = 1.25.)
iod and present value price of stock at end of growth period

FOUND IN PARTS A, D, AND E. DISCUSS WHY THESE VALUES MAY DIFFER. WHICH
UE VALUE OF THE ENCORE STOCK?

ning methods, the most conservative estimate of value is given by the zero
re, yet this is hardly more than book value. The most optimistic prediction, the
e market value. The market is obviously not as cautious about Encore
INTEGRATIVE CASE 3
LASTING IMPRESSIONS COMPANY
by Grace D. Nacion

A. For each of the two proposed replacement presses, determine:

(1) Initial investment.
PRESS A PRESS B

Installed cost of new press:

Cost of new press $830,000.00 $640,000.00
+ Installation cost $40,000.00 $20,000.00
Total Cost - New Press $870,000.00 $660,000.00
- After-tax proceeds-sale of old asset :
Proceeds from sale of old press $(420,000.00)
+ Tax on sale of old press* $(121,600.00)
Total proceeds-sale of old press  $(298,400.00) $(298,400.00) $(298,400.00)
+ Change in net working capital** $90,400.00 $-
Initial investment $662,000.00 $361,600.00

*Computation for Tax on sale of old press

Sale Price $420,000.00
- Book Value $ 400,000 - [(.20 +.32 +.19) x $400,000] $(116,000.00)
Gain $304,000.00
x Tax Rate (40%) 40%
Tax on sale of old press* $121,600.00

**Computation for Change in net working capital

Cash $25,400.00
Accounts Receivable $120,000.00
Inventory $(20,000.00)
Increase in current assets $125,400.00
Increase in current liabilities $(35,000.00)
Increase net working capital** $90,400.00
(2) Operating cash inflows (considered depreciation in year 6)

Depreciation
Press A Cost Rate Depreciation

1 $870,000.00 0.20 $174,000.00

2 $870,000.00 0.32 $278,400.00
3 $870,000.00 0.19 $165,300.00
4 $870,000.00 0.12 $104,400.00
5 $870,000.00 0.12 $104,400.00
6 $870,000.00 0.05 $43,500.00
$870,000.00

Press B Cost Rate Depreciation

1 $660,000.00 0.20 $132,000.00

2 $660,000.00 0.32 $211,200.00
3 $660,000.00 0.19 $125,400.00
4 $660,000.00 0.12 $79,200.00
5 $660,000.00 0.12 $79,200.00
6 $660,000.00 0.05 $33,000.00
$660,000.00

Existing Cost Rate Depreciation

1 $400,000.00 0.12 $48,000.00 Yr. 4

2 $400,000.00 0.12 $48,000.00 Yr.5
3 $400,000.00 0.05 $20,000.00 Yr.6
4 $-
5 $-
6 $-
$116,000.00
 Operating Cash Inflows

Existing Press

Earnings Before Depreciation Earnings Earnings Cash Flow

Depreciation and Taxes Before Tax After Tax
1 $120,000.00 $48,000.00 $72,000.00 $43,200.00 $91,200.00
2 $120,000.00 $48,000.00 $72,000.00 $43,200.00 $91,200.00
3 $120,000.00 $20,000.00 $100,000.00 $60,000.00 $80,000.00
4 $120,000.00 $120,000.00 $72,000.00 $72,000.00
5 $120,000.00 $120,000.00 $72,000.00 $72,000.00
6 $- $- $- $-

Press A
Earnings Before Depreciation Earnings Earnings Old Incremental
Depreciation and Taxes before taxes after taxes Cash Flow Cash Flow
1 $250,000.00 $174,000.00 $76,000.00 $45,600.00 $219,600.00 $91,200.00
2 $270,000.00 $278,400.00 $(8,400.00) $(5,040.00) $273,360.00 $91,200.00
3 $300,000.00 $165,300.00 $134,700.00 $80,820.00 $246,120.00 $80,000.00
4 $330,000.00 $104,400.00 $225,600.00 $135,360.00 $239,760.00 $72,000.00
5 $370,000.00 $104,400.00 $265,600.00 $159,360.00 $263,760.00 $72,000.00
6 $- $43,500.00 $(43,500.00) $(26,100.00) $17,400.00

Press B
Depreciation Earnings Earnings Old Incremental
before taxes after taxes Cash Flow Cash Flow
1 $210,000.00 $132,000.00 $78,000.00 $46,800.00 $178,800.00 $91,200.00
2 $210,000.00 $211,200.00 $(1,200.00) $(720.00) $210,480.00 $91,200.00
3 $210,000.00 $125,400.00 $84,600.00 $50,760.00 $176,160.00 $80,000.00
4 $210,000.00 $79,200.00 $130,800.00 $78,480.00 $157,680.00 $72,000.00
5 $210,000.00 $79,200.00 $130,800.00 $78,480.00 $157,680.00 $72,000.00
6 $- $33,000.00 $(33,000.00) $(19,800.00) $13,200.00
 (3) Terminal Cash Flow (At the end of year 5)

PRESS A PRESS B

After tax proceed - sale of new press

Proceeds of sale of new press $400,000.00 $330,000.00
Tax on sale of new press * $(142,600.00) $(118,800.00)
Total Proceeds-new press $257,400.00 $211,200.00
- After-tax proceeds-sale of old press :
Proceeds on sale of old press  $(150,000.00)
+ Tax on sale of old press** $(60,000.00)
Total proceeds-sale of old press  $(90,000.00) $(90,000.00) $(90,000.00)
+ Change in net working capital $90,400.00 $-
Terminal Cash flow $257,800.00 $121,200.00

*Computation for Tax on sale of new press

PRESS A PRESS B
Sale price $400,000.00 $330,000.00
- Book Value (Yr 6) $(43,500.00) $(33,000.00)
- Gain $356,500.00 $297,000.00
Tax Rate (40%) 40% 40%
Tax on sale of new press* $142,600.00 $118,800.00

**Computation for Tax on sale of old press

Sale price $150,000.00
Book Value (Yr 6) $-
Gain $150,000.00
Tax Rate (40%) 40%
Tax on sale of old press** $60,000.00
 PRESS A PRESS B

Initial Investment $662,000.00 $361,600.00

Cash Inflow Cash Inflow

Year 1 $128,400.00 $87,600.00
Year 2 $182,160.00 $119,280.00
Year 3 $166,120.00 $96,160.00
Year 4 $167,760.00 $85,680.00
Year 5* $449,560.00 $206,880.00

* Operating cash flow $191,760.00 $85,680.00

+ Terminal cash inflow $257,800.00 $121,200.00
Cash inflows year 5* $449,560.00 $206,880.00

B. Using the data developed in Part A, find and depict on a time line the relevant cash flow stream associated with each of the two propose
presses, assuming that each is terminated at the end of 5 years.

Cash Flows
Press A $128,400.00 $182,160.00 $166,120.00 $167,760.00 $449,560.00

0 1 2 3
End of Year

Cash Flows
Press B $87,600.00 $119,280.00 $96,160.00 $85,680.00 $206,880.00

0 1 2 3
 End of Year

C. Using the data developed in Part B, apply each of the following decision techniques:

CUMMULATIVE CASH FLOWS

PRESS A PRESS B
Year 1 $128,400.00 $87,600.00
Year 2 $310,560.00 $206,880.00
Year 3 $476,680.00 $303,040.00
Year 4 $644,440.00 $388,720.00
Year 5 $1,094,000.00 $595,600.00

(1) Payback period

Press A Press B
4 years + [(662,000 - 644,440)/191,760] 3 years + [(361,600 - 303,040)/85,680]
= 4 + (17,600/191,760) = 3 + (58,560/85,680)
= 4 + 0.9178 = 3 + .68347
= 4.09 years = 3.8 years

(2) Net Present Value (NPV)

Press A Press B
Cash Flow  PVlF 14% PV Cash Flow  PVlF 14%
1 $128,400.00 0.877 $112,631.58 1 $87,600.00 0.877
2 $182,160.00 0.769 $140,166.20 2 $119,280.00 0.769
3 $166,120.00 0.675 $112,126.27 3 $96,160.00 0.675
4 $167,760.00 0.592 $99,327.39 4 $85,680.00 0.592
5 $449,560.00 0.519 $233,487.38 5 $206,880.00 0.519
$697,738.82

Net Present Value = $677,769.21 - $662,000 Net Present Value = $379,383.92 - $

 Net Present Value $35,738.82 Net Present Value $30,105.88

(3) Internal Rate of Return

Computed from Online IRR Calculator
Press A 14.82%
Press B 15.83%

Draw net present value profiles for the two replacement presses on the same set of axes, and discuss conflicting rankings of the two pre
D.
resulting from use of NPV and IRR decision techniques.
500000

450000

400000
Net Present Value $
350000

300000
N
PV-A
250000 N
PV-B

200000

150000

100000

50000

0
0 2 4 6 8 10 12 14 16 18

Discount Rate

When the cost of capital is below approximately 15 percent, Press A is preferred over Press B, while at costs greater than 15 percent, Pre
preferred.  Since the firm's cost of capital is 14 percent, conflicting rankings exist.  Press A has a higher value and is therefore preferred
using NPV, whereas Press B's IRR of 15.83 percent causes it to be preferred over Press A, whose IRR is 14.82 percent using this measure

E. Recommend which, if either, of the presses the firm should acquire if the firm has (1) unlimited funds or (2) capital rationing

(1)  If the firm has unlimited funds, Press A is preferred.

(2) If the firm is subject to capital rationing, Press B may be preferred. 
F. What is the impact on your recommendation of the fact that the operating cash inflows associated with press A are characterized as a ve
contrast to the low-risk operating cash inflows of press B?

The risk would need to be measured by a quantitative technique such as certainty equivalents or risk-adjusted discount rates.  The resu
present value could then be compared to Press B and a decision made.
 Cash
InFlow
$128,400.00
$182,160.00
$166,120.00
$167,760.00
$191,760.00
$17,400.00

Cash
InFlow
$87,600.00
$119,280.00
$96,160.00
$85,680.00
$85,680.00
$13,200.00
m associated with each of the two proposed replacement

3 4 5 6

3 4 5 6
3 years + [(361,600 - 303,040)/85,680]

PV
$76,842.11
$91,782.09
$64,905.26
$50,729.44
$107,446.99
$391,705.88

Net Present Value = $379,383.92 - $361,600

 discuss conflicting rankings of the two presses, if any,

while at costs greater than 15 percent, Press B is

s a higher value and is therefore preferred over Press B
se IRR is 14.82 percent using this measure. 

d funds or (2) capital rationing

ated with press A are characterized as a very risky in

s or risk-adjusted discount rates.  The resultant net

INTEGRATIVE CASE 4
O'GRADY APPAREL COMPANY
by Grace D. Nacion

A. Calculation of After-tax cost

Source of Capital Range of new financing After-tax cost (%)

Long-term debt $0 - $700,000 7.5%
$700,000 and above 10.8%
Preferred stock $0 and above 17.9%
Common stock equity $0 - $1,300,000 23.8%
$1,300,000 and above 26.0% see computations below

After-tax cost of debt: Cost of common stock equity:

$0 - $700,000 $0 - $1,300,000
= kd (1 – T) = (D1 / Nn) + g
= .125 x (1 -. 4) = ($1.76 / $20) + .15
= 7.5% = 23.8%

$700,000 and above $1,300,000 and above

= kd (1 – T) = (D1 / Nn) + g
= .18 x (1 -. 4) = ($1.76 / $16) + .15
= 10.8% = 26%

Cost of preferred stock:

$0 and above
= preferred dividend/preferred price
= $10.20/$57
= 17.9%

B. (1) Determine the break points associated with each source of capital.

Break even point : BPj = AFj / Wj

Long-term debt = $700,000.00

= $2,800,000.00
 = $2,800,000.00
0.25

not applicable to preferred stock

Common Stock Equity = $1,300,000.00

= $2,000,000.00
0.65

(2) Using the break points developed in part (1), determine each of the ranges of total new financing over which the firm's weighted
captal (WACC) remains constant.

Cost of Component Source of Financing

Ranges of Total New financing
Long-term debt Preferred stock Common stock equity

$0 - $2,000,000 7.5% 17.9% 23.8%

$2000,0001 - $2,800,000 7.5% 17.9% 26.0%
above $2,800,000 10.8% 17.9% 26.0%

(3) Calculate the weighted average cost of capital for each range of total new financing

formula for WACC = wdkd (1 – T) + wpkp + wcks

Range Calculation WACC

$0 - $2,000,000 (.25 x .075) + (.10 x .179) + (.65 x .238) 19.14%
$2000,0001 - $2,800,000 (.25 x .075) + (.10 x .179) + (.65 x .260) 20.57%
above $2,800,000 (.25 x .108) + (.10 x .179) + (.65 x .260) 21.39%

(1) Using your findings in part B(3) with the investment opportunities schedule (IOS), draw the firm's weighted magrinal cost of capi
C. scheduke and the IOS on the same set of axes, with total new financing or investment on the x axis and weighted average cost of cap
the y axis.
 28 D

26
Weighted Average Cost of Capital
C
and IRR (%)
24

F
22
A WMCC

20
B

E
18
G
IOS
16
0 500 1000 1500 2000 2500 3000 3500

Total New Financing/Investment ($000)

(2) Which, if any, of the available investments would you recommend that the firm accept? Explain your answer.
Answer:
Projects D, C, F, and A should be accepted since each has an internal rate of return greater than the weighted average cost of capital

D. (1) Assuming that the specific financing costs do not change, what effect would a shift to a more highly leveraged capital structure co
long-term debt, 10% preferred stock, and 40% common stock have on your previous findings?

Changing the capital structure to include more debt while keeping the cost of each financing source the same will change both the br
which the weighted average cost of capital changes and the WACC. 

 Breaking points for 50% debt, 10% preferred stock, and 40% common stock: 
 Range Calculation WACC
$0 - $1,400,000 (.50 x .075) + (.10 x .179) + (.40 x .238) 15.1%
$1,400,001 - $3,250,000 (.50 x .108) + (.10 x .179) + (.40 x .238) 16.7%
Above $3,250,000 (.50 x .108) + (.10 x .179) + (.40 x .260) 17.6%

Since the total for all investment opportunities is $3,200,000, the lowest IRR is 17%, and the cost of capital below $3,250,000 is less t
(15.1% and 16.7%), all 7 projects are acceptable.

(2) Which capital structure - the original one or this one - seems better? Why?
Answer:
For any set of investment opportunities, the more highly leveraged capital structure will result in accepting more projects.  However,
leveraged capital structure increases the firm's financial risk. 

E. (1) What type of dividend policy does the firm appear to employ? Does it seem appropriate given the firm's recent growth in sales an
given its current investment opportunities?
Answer:

O’Grady follows a constant-payout-ratio dividend policy. For each of the years 2001 through 2003 the firm paid out a constant 40% o
same payout percent is included in the projections for 2004.  Given the firm’s growth in sales and earnings it would seem appropriate
the constant payout.  O’Grady’s could use the internally generated funds to help finance some of the growth. 

(2) Would you recommend an alternative dividend policy? Explain. How would this policy affect the investments recommended in pa
Answer:

They should change their dividend policy to the regular dividend policy.  They can maintain the constant dividend as earnings increas
some cash for investment.  If earnings continue to increase the constant dividend policy could later be converted to a low-regular-and
policy.  Retaining more of the income will increase the breakpoint for common stock equity financing.  This higher breakpoint will cau
downward in the WMCC schedule.  O’Grady’s should be able to undertake additional investment opportunities and further increase sh
wealth.
f the ranges of total new financing over which the firm's weighted average cost of

ties schedule (IOS), draw the firm's weighted magrinal cost of capital (WMCC)
ncing or investment on the x axis and weighted average cost of capital and IRR on
nd that the firm accept? Explain your answer.

al rate of return greater than the weighted average cost of capital. 

effect would a shift to a more highly leveraged capital structure consisting of 50%
on your previous findings?

the cost of each financing source the same will change both the breaking points at
. 
owest IRR is 17%, and the cost of capital below $3,250,000 is less than 17%

etter? Why?

capital structure will result in accepting more projects.  However, a more highly

Does it seem appropriate given the firm's recent growth in sales and profits and

of the years 2001 through 2003 the firm paid out a constant 40% of earnings.  The
the firm’s growth in sales and earnings it would seem appropriate to not continue
funds to help finance some of the growth. 

How would this policy affect the investments recommended in part C(2)?

olicy.  They can maintain the constant dividend as earnings increase, freeing up
nstant dividend policy could later be converted to a low-regular-and-extra dividend
or common stock equity financing.  This higher breakpoint will cause a shift
dertake additional investment opportunities and further increase shareholders’
INTEGRATIVE CASE 5
Casa de Diseño
by Grace D. Nacion

A. Operating Cycle = Average age of inventory + Average Collection Period B. Industry OC

= 110 days + 75 days =
= 185 days =

Cash Convertion Cycle = Operating Cycle - Average Payment Period Industry CCC
= 185 days - 30 days =
= 155 days =

Resources Needed = Total annual outlays Industry Resources Nee

×Cash Conversion Cycle
360 days
= $ 26 , 500 , 000 = $ 26
×155
360 360

= ### =

C. Casa de Diseño
Negotiated Financing $11,409,722.22
Less: Industry Resourced Needed $(8,759,722.22)
$2,650,000.00

Cost of Inefficiency $2,650,000.00 x .15

= $397,500.00

D. (1) Offering 3/10 net 60:

Reduction in collection period 75=days x (1 - .4) Cash Conversion Cycle =

= 45 days =

Operating Cycle = 83 days + 45 days Resources Needed = $ 26

360
 $ 26
= 128 days 360
=
Additional Savings = $8,759,722 - $6,551,389
= $2,208,333.33
= $2,208,333.33 x .15
= $331,250.00

(2) Reduction in Sales:

$40,000,000.00 x .45 x .03
= $540,000.00

(3) Average investment in accounts receivable assuming cash discount:

New Average Collection Period = 45 days

($40,000,000 x .80) / (360 / 45) = $4,000,000.00

Average investment in accounts receivable assuming no cash discount:

(40,000,000 x .80) / (360 / 75) = $6,666,666.67

Reduction in investment in accounts receivable:

$6,666,667 - $4,000,000 = $2,666,667.00

Annual Savings:
$2,666,667 x .15 = $400,000.00

(4) Reduction in Bad Debt Expense:

$40,000,000 x (.02 - .015) = $200,000.00

(5) Cost of Offering Cash Discount $(540,000.00)

Annual savings from reduction
in investment in accounts receivable $400,000.00
Annual savings from reduction
 in bad debt expense $200,000.00
Savings due to cash discount $60,000.00

E. Ms. Leal should bring working capital measures in line with the industry and offer the proposed cash discount

F. The other sources of financing available include both unsecured and secured sources.

Unsecured Sources:
Ø Short-term self-liquidating bank loans – usually used to help with seasonal needs where the loan is repaid as receivables are collecte
Ø Single payment bank notes – normally a short-term (30 days to 9 months) loan to be repaid on the end of the loan period.
Ø Line of credit – a loan much like a credit card in that the borrow can draw down the money as needed and make various payments. T
be paid in full at some point within each year.
Ø Revolving credit agreement – a guaranteed amount of funds available to the borrower. The borrower usually pays a commitment fee
compensate them for having the funds available “on demand.”
Ø Commercial paper – a 3 day to 270 day loan sold as a security to the lender.

Secured Sources:

Ø Pledging accounts receivable – a lender purchases the receipts to be received from the accounts receivable accounts of the borrower
advances the money to the borrower in an amount discounted from the book value of the receivables. When the borrower collects the
payments the money is remitted to the lender.
Ø Factoring accounts receivable – Selling the firms accounts receivable to a lender at a discount to the book value of the receivables. T
receives the payment directly from the customer when they make payment.
Ø Floating inventory liens – when inventory is used as collateral for a loan.
Ø Trust receipt inventory loans – a loan against relatively expensive and easily identifiable assets, such as automobile. The loan is repa
is sold.
Ø Warehouse receipt loans – when assets in a warehouse are pledged against a loan. The lender takes control of the inventory items th
stored in a public warehouse.
 83 days + 75 days
158 days

158 days - 39 days

119 days

Industry Resources Needed

$ 26 , 500 , 000
×119
360

$8,759,722.22

128 days - 39 days

89 days

$ 26 , 500 , 000
×89 days
360
$ 26 , 500 , 000
×89 days
360
$6,551,388.89
es.

sonal needs where the loan is repaid as receivables are collected

nths) loan to be repaid on the end of the loan period.
raw down the money as needed and make various payments. The loan must often

e to the borrower. The borrower usually pays a commitment fee to the bank to

lender.

received from the accounts receivable accounts of the borrower. The lender
book value of the receivables. When the borrower collects the receivables

to a lender at a discount to the book value of the receivables. The factor normally
ment.
an.
d easily identifiable assets, such as automobile. The loan is repaid when the asset

gainst a loan. The lender takes control of the inventory items that are normally
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