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XYZ Corporation is experiencing an average collection period of 120 days




Question;XYZ Corporation is experiencing an average collection period of 120 days. The industry average is about75 days. The firm has also experienced an increase in its business in the last 2 years and has been buyingmore inventory. The management wants to increase the amount of permanent inventory stock, andprojects an increase in the accounts receivable balance.The firm is considering two financing options:a 7-year loan at the rate of 8.5%, and a 90 note at prime plus 2%, which would help the firm withliquidity challenges.Write a memo to management of no more than 350 words in which you respond to the following:-Which financing option do you recommend and why? Prime rate is 5%.1) Explain the relevance of the matching method in making this decision.2) Is there a scenario where both options may be used? Explain.3) The firm?s average days payable outstanding is 45, and the industry average is 60. Determine possiblemethods to use payables as a short-term financing strategy. Recommend the most beneficial methodand include your rationale.4) Suppose the firm?s vendors offer credit terms of 2/10, net 45. Might the strategy be different in thiscase and why?


Paper#49418 | Written in 18-Jul-2015

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