Task 1: Br 482,500 is borrowed from AIB (Br 480,000 for the product + Br 2,500 facilitation fee).
Task 2: Total credit expense involves 13% interest semi-annually for five years plus the Br 2,500 facilitation fee.
Task 3: Record Br 482,500 as a debit to Cash and credit to Notes Payable.
Task 4: Regularly record interest expense and reduce Notes Payable for principal payments until the final disbursement.
Task 5: Estimated rate of return is (Br 95,000 / Br 482,500) * 100.
Task 6: Calculate the loan balance and interest expense at the 3rd-year end.
Task 1: Calculate the amount to be borrowed financed by AIB.
The total amount required for the new product is Br 480,000. However, the bank charges a facilitation fee of Br 2,500. Therefore, the net amount to be borrowed is Br 480,000 + Br 2,500 = Br 482,500.
Task 2: Determine the total expense related to the credit.
The bank offers a loan at 13% interest semi-annually for five years. The interest expense is calculated using the formula: Interest = Principal * Rate * Time. With a semi-annual compounding, the effective rate is 13%/2 = 6.5% per period. The total expense is the sum of interest and fees.
Task 3: Record the amount borrowed on the books of the company.
Debit the Cash account for Br 482,500 and credit the Notes Payable for the same amount.
Task 4: Record the final disbursement of principal and interest on the books of the company.
Every six months, record the interest expense and reduce the Notes Payable by the principal payment. The final disbursement entry will be when the loan is fully paid.
Task 5: Calculate the estimated rate of return.
The estimated rate of return is the profit divided by the amount borrowed, expressed as a percentage: (Br 95,000 / Br 482,500) * 100.
Task 6: Calculate the amount of the loan balance and interest expense at the end of the 3rd year.
Use the loan amortization schedule to determine the remaining balance and interest expense at the end of the third year.
Additional Questions:
1. What fees and costs are associated with different credit options, including the specific fees mentioned in the scenario?
Answer: Identify and discuss various fees such as interest rates, origination fees, and any other costs associated with credit options.
2. What are the types of credit facilities that companies can utilize, and how do they differ?
Answer: Explore different credit facilities like revolving credit, term loans, and lines of credit, highlighting their distinctive features.
3. How can a company analyze and discuss strategies to avoid excessive or unmanageable debt?
Answer: Discuss prudent financial management practices, debt-to-equity ratios, and strategies for monitoring and mitigating excessive debt levels.
Complete question below:
Task 1: Calculate the amount to be borrowed financed by AIB.
Task 2: Determine the total expense related to the credit.
Task 3: Record the amount borrowed on the books of the company.
Task 4: Record the final disbursement of principal and interest on the books of the company.
Task 5: Calculate the estimated rate of return.
Task 6: Calculate the amount of the loan balance and interest expense at the end of the 3rd year.
Additional Questions:
1. What fees and costs are associated with different credit options, including the specific fees mentioned in the scenario?
2. What are the types of credit facilities that companies can utilize, and how do they differ?
3. How can a company analyze and discuss strategies to avoid excessive or unmanageable debt?