Financial Management case study 1 Essay Example | Topics and Well Written Essays - 500 words

fiscal Management case study 1 - Essay ExampleThe inflation contribution preserves the buy power of money (Ross, Westerfield, & Jaffe, 2005). found on economic reports, a 2.5% inflation rate over the succeeding(a) 5 years would sufficiently account for inflation.The second component of the by-line rate is the credit risk. The engagement rate offered to customers with poor credit worthiness is higher to treat for the higher risk of lending to them (Weston, Besley, & Brigham, 1996). Based on the credit rate range established by the credit department, the best customer would be assigned a 1% credit rate.The last component of the interest rate is the profit component. This component is the profit from financing activities of XYZ. Since Shanghai Winters is one of the best customers, this component is non applicable to it.Notice that this interest rate is higher than the 8.0% going rate on a $70,000 five-year note receivable. The higher rate is to compensate for the credit risk of extending credit to such a customer. Also built inside the 8.0% is the profit component, which has not been charged to the best customers.