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Charmin Paper Company sells to the 12 accounts listed below.
Receivable Balance Outstanding
Average of the Account over the Last Year
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 8.5 percent, and Capital charges 3.5 percent over prime to Charmin as its annual loan rate.
a. Determine the maximum loan for which Charmin Paper Company 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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