Which Margin Formula Do Banks Generally Apply to Loans on the Basis

question 1

Multiple Choice

Which margin formula do banks generally apply to loans on the basis of a line of credit?

• A) 10 percent of the value of accounts receivable plus 60 percent of inventory
• B) 50 to 80 percent of the value of accounts receivable plus 50 percent of inventory
• C) 20 percent of the value of accountants receivable plus 20 percent of inventory
• D) 30 percent of the value of accounts receivable plus 15 percent of inventory

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Definitions:

Present Value

The present worth of a future amount of money or series of cash inflows, calculated using a given rate of return.

Annual Net Cash Flows

Annual net cash flows represent the amount of cash a company generates or loses within a year from its operating, investing, and financing activities.

Required Return

The minimum amount of profit or gain an investor expects to achieve from an investment to make it worthwhile.

Net Present Value Method

A financial modeling technique that evaluates the profitability of an investment by discounting future cash flows to their present value and subtracting the initial investment.