Sunny Coast Enterprises (A). Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorpo

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Sunny Coast Enterprises A Sunny Coast Enterprises Has Sold A Combination Of Films And Dvds To Hong Kong Media Incorpo 1 (66.59 KiB) Viewed 64 times

Sunny Coast Enterprises (A). Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorporated for US$120,000, with payment due in seven months. Sunny Coast Enterprises has the following alternatives for financing this receivable: 1) Use its bank credit line. Interest would be at the prime rate of 5.3% plus 150 basis points per annum. 2) Use its bank credit line but purchase export credit insurance for a 1.1% fee. Because of the reduced risk, the bank interest rate would be reduced to 5.3% per annum without any points. In both cases Sunny Coast would need to maintain a compensating balance of 20% of the loan's face amount, and no interest will be paid on the compensating balance by the bank. a. What are the annualized percentage all-in costs each alternative? b. What are the advantages and disadvantages of each alternative? c. Which alternative would you recommend? (NOTE: Assume a 360-day year.)