Alyx needs additional short-term financing to modify her children's clothing business. To generate funds, she sells...
Alyx needs additional short-term financing to modify her children's clothing business. To generate funds, she sells her accounts receivable to an external party for slightly less than their book value. What type of financing resource is Alyx using?
· Trade credit
· Commercial lending
· Peer-to-peer lending
· Factoring
Homework Answers
Factoring
The given example is a form of financing called factoring. Under factoring, the current assets are sold to a third party at a discount. So if the assets are worth $100, they may be sold for $90 to generate immediate cash.
Trade credit refers to buying goods on credit and this is a source of finance.
Commercial lending refers to generating finance by borrowing from commercial banks and institutions.
Peer-to-peer lending is that form of financing where money is borrowed from other individuals. This is not the case here.
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Use the percent of sales method to estimate funds needed
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* Because Carnival inventory sales are a small fraction of their
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Inventory, or Gross Profit. You also do not need to calculate EPS
or Return on Common Stockholders' Equity
In any place where the formula calls for an average, use the
2017 number...
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