# Need help with Cash Management please!

taraskyn
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**41**Registered
Hi all!

Osborne Books, Cash Management, Workbook, Practice assessment 2, task 2.4

The question is to find the best possible option of funding for the business and calculate:

1. Loan interest

2. Arrangement fee

3. Overdraft interest

4 and Total

There are three financing option given to choose from.

First two I understand.

The third one is this one:

Each of three partners will take out the personal secured loan of 32000 repayable over five years at an interest rate of 2.5%. These monies will then be loaned to the partnership as increased capital. Interest of 4% per annum is payable by the partnership to the partners.

All I need here actually is to calculate the loan interest for the first year of financing.

The correct answer by the way is: £ 3840.

The only way I can come up with this is: 32000 x 2.5% x 5years - 4% = 3840, but it does not quite make sense to me.

Anyone can help please.

Thanks!!!

Osborne Books, Cash Management, Workbook, Practice assessment 2, task 2.4

The question is to find the best possible option of funding for the business and calculate:

1. Loan interest

2. Arrangement fee

3. Overdraft interest

4 and Total

There are three financing option given to choose from.

First two I understand.

The third one is this one:

Each of three partners will take out the personal secured loan of 32000 repayable over five years at an interest rate of 2.5%. These monies will then be loaned to the partnership as increased capital. Interest of 4% per annum is payable by the partnership to the partners.

All I need here actually is to calculate the loan interest for the first year of financing.

The correct answer by the way is: £ 3840.

The only way I can come up with this is: 32000 x 2.5% x 5years - 4% = 3840, but it does not quite make sense to me.

Anyone can help please.

Thanks!!!

## Comments

452RegisteredHi there !

The answer £3840 is coming from

32000 * 3 (three partners)= 96000

96000 * 4% = 3840

Which is the arrangement fee.

just to double check are you sure your not calculating the arrangement fee?

41RegisteredYes I am sure. It is for loan interest.

But where 2.5% gone?

41RegisteredBusiness will have to pay 4% on new capital invested by partners. So the cost of the loan to the business in the amount of £96000 will be 4% which is £3840.

Am I correct???

1,461Moderator, MAAT, AAT Licensed AccountantI first calculate the total amount lent to the business 3 x 32,000 = £96,000

The interest rate is 4% per annum so £96,000 x 4% = £3840 - this is the cost for the partnership of the loan interest.

Is this clearer?

MN

Edit: I was a bit slow!

41Registered