| Charmin Paper Company sells to the 12 accounts listed below. |
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| Account |
Receivable Balance Outstanding |
Average of the Account over the Last Year |
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| A |
$60,000 |
28 |
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| B |
120,000 |
43 |
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| C |
70,000 |
10 |
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| D |
20,000 |
52 |
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| E |
50,000 |
42 |
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| F |
220,000 |
34 |
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| G |
30,000 |
16 |
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| H |
300,000 |
65 |
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| I |
40,000 |
33 |
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| J |
90,000 |
50 |
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| K |
210,000 |
14 |
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| L |
60,000 |
35 |
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| Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances, between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan. The current prime rate is 8.5 percent, and Capital charges 3.5 percent over prime to Charmin as its annual loan rate. |
| a. Determine the maximum loan for which Charmin Paper Company could qualify. |
| b. Determine how much one month’s interest expense would be on the loan balance determined in part a. |
