Question #1 (15 marks) When the Copper Corporation buys inventory, it must often rely on short-term bank financing to pa

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Question #1 (15
marks)
When the Copper Corporation buys
inventory, it must often rely on short-term bank financing to pay
for the goods. Bank financing is usually in the form of a
short-term self-liquidating loan, where the amount outstanding
increases when goods are paid for and decreases when cash is
received from sales. Copper’s bank charges interest at prime (7%)
plus 1%.
Consider the following example.
November 1
Buy inventory for
$10,000
December 1
Pay supplier / borrow $10,000
January 30
Sell goods for $20,000
March 15
Collect receivables,
$20,000, and repay loan,
$10,000