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23. Texas Oil Supplies sells to the 12 accounts listed below

23. Texas Oil Supplies sells to the 12 accounts listed below
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FINANCE

FIN 200
Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Introduction to Finance: Harvesting the Money Tree
Fin 200 Week Solution
Chapter 8

23. Texas Oil Supplies sells to the 12 accounts listed below.

Account Receivables Balance Outstanding Average Age of the Account over the Last Year
A . . . . . . . . . . . . $ 50,000 . . . . . . . . . . . . . . 35 days
B . . . . . . . . . . . . 80,000 . . . . . . . . . . . . . . 25
C . . . . . . . . . . . . 120,000 . . . . . . . . . . . . . . 47
D . . . . . . . . . . . . 10,000 . . . . . . . . . . . . . . 15
E . . . . . . . . . . . . 250,000 . . . . . . . . . . . . . . 35
F . . . . . . . . . . . . 60,000 . . . . . . . . . . . . . . 51
G . . . . . . . . . . . . 40,000 . . . . . . . . . . . . . . 18
H . . . . . . . . . . . . 180,000 . . . . . . . . . . . . . . 60
I . . . . . . . . . . . . . 15,000 . . . . . . . . . . . . . . 43
J . . . . . . . . . . . . 25,000 . . . . . . . . . . . . . . 33
K . . . . . . . . . . . . 200,000 . . . . . . . . . . . . . . 41
L . . . . . . . . . . . . 60,000 . . . . . . . . . . . . . . 28

J&J Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 30 and 40 days; and 70 percent for account balances between 40 and 45 days. Customers that take over 45 days to pay their bills are not considered as adequate accounts for a loan. The current prime rate is 7 percent, and J&J Financial Corporation charges 2 percent over prime to Texas Oil Supplies as its annual loan rate.

a. Determine the maximum loan for which Texas Oil Supplies could qualify.
b. Determine how much one month’s interest expense would be on the loan balance determined in part a.

 

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