10. Idaho Industries currently purchases an average of P20,000 per day of raw materials.

Idaho’s
suppliers offer credit terms of "net 60" and the firm waits until the end of the credit period to pay its
suppliers. Determine the additional trade credit that can be obtained by the firm if Idaho stretches its
accounts payable an extra 30 days beyond the due date.
a. P1,800,000
b. P600,000
c. P60,000
d. none of the above

11. Melody Dairy has a line of credit with its bank. The firm plans to borrow P400,000 at a rate of 10
percent. The bank requires a 15 percent compensating balance and the firm currently maintains
P20,000 in its account at the bank that can be used to meet the compensating balance requirement.
Determine the annual financing cost to Melody of this loan.
a. 11.1%
b. 10.0%
c. 11.8%
d. none of the above

12. Gooden Foods, Inc. has a revolving credit agreement with its bank under which it can borrow up
to P10 million at an annual interest rate of 12 percent. The firm is required to maintain a 10 percent
compensating balance on any funds borrowed under this agreement and to pay a 0.5 percent
commitment fee on the unused portion of the credit line. Determine the annual financing cost to
Gooden Foods of borrowing P4 million.
a. 13.3%
b. 14.7%
c. 14.2%
d. none of the above

13. Northwest Container Company is considering selling an issue of commercial paper to finance its
seasonal needs. A commercial paper dealer has offered to sell a P10 million issue maturing in 90 days
at an interest rate of 10 percent per annum (deducted in advance). The dealer's fee for selling the
commercial paper would be P10,000. Determine the annual financing cost of commercial paper
financing to Northwest.
a. 10.7%
b. 10.3%
c. 10.0%
d. 9.3%
Answer: a