# Need help with Cash Management please!

Registered 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.

Thanks!!!

• Registered Posts: 452
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.

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?
• Registered Posts: 41 ? ? ?
Thanks.
Yes I am sure. It is for loan interest.
But where 2.5% gone?
• Registered Posts: 41 ? ? ?
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???
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