Omega Steel: Cash Raising and Risk Management

Raising Cash: Loan and Accounts Receivables

OMEGA STEEL must raise cash quickly to meet current financial obligations. The ownerswant to raise cash using two methods. The first is to take out a loan which it expects topay off early as it is able to obtain long term financing at very reasonable interest rates.The second method of raising cash involves converting accounts receivables into cash. Several investors have expressed aninterest in paying cash for OMEGA STEEL’S accounts receivable however, because ofOMEGA STEEL’S weak financial condition, no intermediary is willing to act as a specialpurpose vehicle (SPV) for the investors. a.Explain how being able to obtain long term financing affects OMEGA STEEL’Sinterest rate risk;b.Explain how OMEGA STEEL’S inability to find an SPV to help it convert itsaccounts receivable to cash will affect its credit risk.2.What cost allocation method or how can the “total cost of risk” be allocated equitablythroughout the organizatio