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The aim of the paper is, first of all, to analyze various sources of short-term financing, secondly, to explore procedures to convert different terms and conditions for various types of short-term financing sources into effective interest rates after tax and, thirdly, to establish the relationship between a set of independent variables in order to produce an effective interest rate after tax as a dependent variable. To determine what sources of short-term financing to employ, it is important to take into consideration the cost of all available sources expressed as a comparable effective interest rate after tax and choose the source in accordance with the effective interest rate after tax because that represents the real cost of financing. Finally, the source that has the lowest effective interest rate after tax should be chosen. The results of the work will provide equations for calculating effective interest rates after tax for different short-term financing sources e.g: line of credit, simple interest bank loans, bank loans with discount interest, bank loans with compensating balances, bank loans with discount interest and compensating balances, secured bank loans, instalment loans, factoring accounts receivable and commercial papers. On the basis of the above, it can be determined that an effective interest rate after tax can be accurately calculated using these equations. The results lead to the conclusion that consideration and comparison of all available sources regarding costs are easier as calculation of an effective interest rate is simplified by using the given equations. |
