Working Capital – June2011 – Q4

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June 7, 2016 at 11:27 pm #320642
chevenuy
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Good day, I was attempting the Working Capital question from the June 2011 exam – Q4 b(ii) – Early Settlement

Question:
Why is the Annual Cost of Borrowing of 4.5% p.a. calculated on the ‘Reduction in Payables’ ($147,945) and not on the Revised Level of Payables ($73,973)?
June 8, 2016 at 8:46 am #320726
John Moffat
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The answer has calculated the increase in the financing cost.

What you could have done is calculate the financing cost of the current payables, and the financing cost of the revised payables. The difference between then would be the increase in the financing cost.
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