Need help with Cash Management please!
taraskyn
Feels At HomeLondonRegistered Posts: 41
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!!!
0
Comments

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!!!
Hi 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?0 
Thanks.
Yes I am sure. It is for loan interest.
But where 2.5% gone?0 
Ok, so as I understand the 2.5% is partners personal headache and it does not add any cost to the business.
Business 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???0 
MarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,433Hi taraskyn,
I 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!0 
Thanks!!!!!!!!!!!!!! All clear now!0