Introduction to Finance

a. 
A 14 percent APR bank loan
b. 
A 13 percent APR, discounted bank loan
c. 
12.5 percent APR with fees of 1 percent for receivables fi nancing
d. 
A $2 million revolving credit agreement with an APR of 12 per-
cent, a commitment fee of 0.5 percent on the unused balance, and a 
10 percent compensating balance requirement
19. 
Challenge Problem
Visit a fi rm’s website and obtain historical 
quarterly balance sheet information from it or from its SEC EDGAR 
fi lings http://www.walmart.com and http://www.walgreens.com may 
be two good sites to use). Record quarterly balance sheet data for 
several years in a spreadsheet. Compute and graph the fi rm’s fi nan-
cing mix (for example, by computing the ratio of current liabilities to 
total assets) and asset mix (by computing the ratio of current assets 
to total assets). What happens to the fi rm’s fi nancing mix and asset 
mix over time? Do the fi nancing and asset mix ratios move together? 
Are any seasonal eff ects in the fi rm’s working capital position and 
fi nancing evident? What conclusions can you draw about the fi rm’s 
use of short-term fi nancing?
20. 
Challenge Problem
Use the information below for this problem. 
Comfi n Company has estimates on its level of current and total assets 
for the next two years:
a. 
Estimate the permanent and temporary current asset levels for 
Comfi n over these months. Find the average amount for fi xed 

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Problems
519
assets, permanent current assets, and temporary current assets in 
year 201X and year 201X + 1.
b. 
What average amounts of short-term and long-term fi nancing 
should Comfi n have during each year if it wants to follow a maturity-
matching fi nancing strategy?
c. 
What average amounts of short-term and long-term fi nancing 
should Comfi n have during each year if it wants to follow an ag-
gressive fi nancing strategy?
d. 
Suppose Comfi n’s cost of short-term funds is 8 percent and its 
cost of long-term funds is 15 percent. Use your answers in (b) and 
(c) to compute the cost of each strategy.
e. 
What are the pro and con arguments toward each strategy in 
terms of profi tability, risk, and company liquidity?
Comfi n Company data for Problem 20.