3.11 SHORT TERM DEBT MANAGEMENT Flashcards
1
Q
What is AFC and what is the formula?
A
AFC = Annual financing cost
discount % / 100% - discount %) X (365 or 360 / total pay period - discount period
2
Q
What are compensating balances?
What is the formula to calculate the cost of the loan?
A
compensating balances are demand deposits balances that the borrower has to reserve as a condition for receiving the loans.
Cost of the loan = Interest paid / net funds available (or principal - compensating balance)
