CHAPTER 13 Financing the business 561As a result, Indo Inc has experienced something of a cash squeeze. The financial manager thinks
a $500 000 commercial bill will give the entity time to sort out the increased accounts receivable
problems. This finance will cost 7 per cent per annum. The sales manager comes up with another
idea of slowing down creditor payments to average 45 days to match the increase in accounts
receivable. Alternatively, Indo Inc has been in contact with a factoring company who has offered
to take over a proportion of their accounts receivable at a rate of 80 per cent of the original
accounts receivable balance (i.e. a 20 per cent discount). What plan of action do you suggest for
Indo Inc? What are the advantages and disadvantages of each of the strategies that have been put
forward?13.35 Craft Cruiser Ltd builds luxury houseboats. The entity needs funds for expansion. It could take
out a fixed rate or variable rate business loan over, say, 25 years. Another alternative is issuing
new shares to investors in the form of a rights issue. Explain the issues relating to these different
forms of finance. In your answer, refer to current interest rates relating to fixed and variable rate
loans and also what the potential costs are of offering shares via a rights issue. What other factors
relating to Crafty Cruiser Ltd need to be taken into account in order to arrive at the best decision
for the company?References
BMW Group 2015, Annual report 2015, http://www.bmwgroup.com.
Borders Group Inc. 2010, Form 10-K, http://www.sec.gov.
Factoring Australia 2012, About us, http://www.factoringaustralia.com.au.
Greenblat, E, Steger, J & Zappone, C 2011, ‘Owners move to salvage Borders, Angus & Robertson’, The Irrigator, 18 February,
http://www.irrigator.com.au.
JB Hi-Fi Ltd 2015, Annual report 2015, http://www.jbhifi.com.au.
National Australia Bank 2013, NAB Farmer’s Choice Package, http://www.nab.com.au.
Qantas Airways Ltd 2015, Annual report 2015, http://www.qantas.com.au.
Spector, M & Trachtenberg, JA 2011, ‘Borders forced to liquidate, close all stores’, The Wall Street Journal, 19 July,
http://online.wsj.com.
Acknowledgements
Reality check: JB Hi-Fi’s capital management: © JB Hi-Fi Ltd.
Photo: © Goodluz / Shutterstock.com.
Photo: © Kzenon / Shutterstock.com.