Charming Paper Company sells to the 12 accounts listed here. Account Receivable Balance Outstanding Average...

Charming Paper Company sells to the 12 accounts listed here.

Account	Receivable Balance Outstanding		Average Age of the Account Over the Last Year
A	$	66,800		25
B		154,000		42
C		77,800		14
D		21,800		56
E		52,100		42
F		254,000		35
G		35,600		20
H		392,000		66
I		44,100		38
J		92,800		58
K		263,000		23
L		68,900		36

Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan.

The current prime rate is 16.50 percent, and Capital charges 4.50 percent over prime to Charming as its annual loan rate.

a. Determine the maximum loan for which Charming Paper Company could qualify.

b. Determine how much one month’s interest expense would be on the loan balance determined in part a. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Expert Solution

First segregate each account based on the given ranges and calculate the total balance for each range as shown below:

Next, calculate the maximum loan limit, the month interest rate and the monthly interest expense as follows:

Therefore, the maximum loan limit is $836,750. The monthly interest expense is $14,643.125.

jeff jeffy answered 1 year ago

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