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CHAPTER 7

Working-capital

management

and short-term

financing
© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 1
– 9781442539174/Petty/Financial Management/6e
CHAPTER ORIENTATION

This chapter is falls into two main parts. First, there is a brief outline of the nature of

working capital. Working-capital management is shown to be critical to a firm’s

liquidity and the hedging principle suggests that short-term finance should be used to

fund short-term liquidity needs. The second part of the chapter looks at specific types

of short-term finance, describing how these operate and how to estimate their cost.

CHAPTER OUTLINE

1. Working capital

Working capital comprises a firm’s current assets and current liabilities and net

working capital is measured by the difference between the amount of such

assets and liabilities.

A firm’s net working capital is a fundamental measure of the firm’s liquidity

and is used to assist in making decisions concerning the appropriate amount to

invest in current assets and also the amount of short-term financing required.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2

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2. Managing current assets and liabilities

In managing the firm’s liquidity, there is a trade-off between risk and return.

Holding extra marketable securities boosts liquidity but tends to reduce

profitability because these types of securities tend to be low yielding.

Similarly, the firm can boost liquidity by using long-term debt in place of short-

term debt, but this too tends to reduce profitability. Thus, there is a trade-off

between liquidity and profitability for most firms—increasing (decreasing)

liquidity minimises risks of running out of cash, but the consequence is

decreased (increased) profit.

3. The hedging principle and the appropriate level of working capital

The hedging principle provides a useful basis for the firm’s working-capital

decisions. The hedging principle or rule of self-liquidating debt requires that

those asset needs of the firm not financed by ‘spontaneous’ sources (i.e.

payables and accruals) should be financed in accordance with the following

rule:

• Permanent asset investments are to be financed with permanent sources

of financing and temporary investments are to be financed with

temporary sources of financing. This concept is based on the notion of

maturity matching.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 3

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 Here: a permanent investment in an asset is one which the firm expects to hold

for a period longer than one year. Such an investment may involve current or

fixed assets. An example would be the minimum level of inventories that a firm

seeks to maintain at all times.

A temporary asset investment comprises the firm’s investment in current assets

that will be liquidated and not replaced during the year. An example would be a

seasonal build-up in inventories that a firm experiences which will be

eliminated over a period of time.

Spontaneous sources of financing include all those sources that arise

‘automatically’ as a result of the firm’s continuing operations (e.g. trade credit)

or that arise naturally as a part of doing business (e.g. wages payable, interest

payable, taxes payable, etc.).

Temporary sources of financing include all forms of current or short-term

financing not categorised as spontaneous. Examples include bank overdrafts,

bank bills and loans, secured against receivables or inventories.

Permanent sources of financing include all long-term sources such as debt

having a maturity longer than one year such as term loans, debentures and

leases, as well as equity finance in the form of ordinary and preference shares.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 4

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4. Short-term financing and its cost

The question of how much short-term financing is needed by a firm comes from

the previous discussion of the hedging principle. (Chapter 6 of the textbook also

dealt with this question as part of the budgetary context of estimating a firm’s

discretionary financing needs or DFN for the forthcoming period.)

Having decided how much finance, there are three basic factors that should be

considered by the firm in selecting which source(s) of short-term financing to

use:

• The effective cost of credit.

• The availability of credit (amount needed for relevant time period).

• The effect of the use of a particular source of credit on the cost and

availability of other sources.

Of these three factors, this chapter emphasises determination of the cost of

particular types of short-term finance.

The cost of finance can be computed most precisely via the effective annual rate

of interest (EAR), as shown in Chapter 4. However, this chapter demonstrates

computations whereby the cost of finance is estimated by means of a nominal

annual interest rate (j) also known as the Annual Percentage Rate (APR), which

is termed ‘RATE’ for the purposes of this chapter:

Interest 1
RATE = 
Principal Time

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 5

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5. Sources of short-term finance

Specific sources of funds will fit into one of two basic groups: unsecured or

secured credit. Some of these specific sources of short-term finance are:

Accrued wages and taxes: Accrued wages provide a useful source of short-

term financing for the firm due to the delay between the provision of services to

the firm by employees and the later date when these amounts are actually paid.

Firms, too, are exposed to a number of taxation liabilities, for example, income

tax, payroll tax, GST, etc. In Australia, most taxation authorities request

payment of assessed amounts at the end of the quarter in which the tax liability

accrues. This delay provides firms with the benefit of being able to use such

funds ‘interest free’ for up to three months.

Trade credit provides one of the most flexible sources of financing available to

the firm. To arrange for credit, the firm need only place an order with one of its

suppliers. The supplier then checks the firm’s credit standing and, if the credit

is good, the supplier sends the merchandise. Trade credit is known by

accountants as accounts payable. It is a spontaneous source of finance because

it tends to grow as the firm’s sales and credit purchases grow.

Some firms seek to extend trade credit accounts beyond the prescribed credit

period, referred to as stretching trade credit. Continued violation of specified

trade credit terms via this means may, however, result in the withdrawal of

trade credit by suppliers.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 6

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 A bank overdraft is a line of credit provided by a bank. It enables a firm to

withdraw funds from an account in excess of the credit balance, up to the

amount of the overdraft limit. The overdraft facility may be unsecured or

secured by a charge over specific or general assets of the firm.

The total cost of an overdraft facility is basically a function of the overdraft

interest rate together with other account fees and charges including an unused

limit fee. An unused limit fee arises where the firm does not use the full amount

of the overdraft limit for the relevant period.

A promissory note is a financial instrument whereby the borrower (issuer,

drawer) promises to pay a sum, the maturity or face value V in n days’ time.

The investor (lender, holder) who buys the note will do so on the basis of

advancing the borrower a sum (the principal) P which represents V minus the

amount of interest (discount) D. Promissory notes are known as a discount-type

security because the interest arising on the financial instrument is calculated as

the difference between the discounted principal amount and the amount repaid

by the borrower at maturity.

Promissory notes are generally restricted to ‘prime’ borrowers with very good

credit ratings, such as leading public companies and government authorities.

The prime status is necessary to attract investors, since the issuer (borrower) is

the only party with an obligation to repay the debt. Because promissory notes

do not contain any promise to repay other than the promise of the borrower,

they are often called one-name paper or commercial paper.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 7

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 A bill of exchange (also known as a commercial bill) is a written order

requiring payment, either on demand or at a specified time. Bills had their

origins as instruments to facilitate trade and enabled a debtor to require

payment from a creditor to whom goods or services had been provided. As with

promissory notes, bills of exchange are a discount-type security. If the bill is

accepted by a bank then the financing is known as a bank bill.

A bank bill is used by firms that do not have the financial standing to issue

promissory notes, generally arising from a relatively lower credit rating or

where the (relatively lower) amount to be raised does not warrant a promissory

note issue. Bill finance using an intermediary such as a bank requires the

drawer (borrower) to incur a number of fees and charges in addition to the

interest rate on the financing. Such fees and charges may include:

• Accommodation/facility/acceptance fees payable to the intermediary

at inception.

• Establishment fees payable at inception to the intermediary for

preparing the relevant documentation.

• Maintenance fees and activity fees for ongoing monitoring of the

funding.

• Rollover fees if a bill is replaced on maturity with a new bill facility.

• Government fees and charges.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 8

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 Accounts receivable or inventory loans: In addition to the above sources of

short-term credit, firms with current assets in the form of accounts receivables

and/or inventories may use these as collateral for a short-term loan. That is, the

receivables or inventories are pledged against a loan. Such loans are flexible

because the amount of these current assets tends to increase in line with the

creation of new business. The amount of the loan is stated as a percentage of the

face value of the receivables or inventories pledged.

As an alternative to the pledging, the accounts receivable may be sold outright,

a process that is called factoring.

Although inventories can provide an excellent source of collateral to the lender

due to their relative liquidity, the nature of such collateral can also create

difficulties in their monitoring. To overcome such issues, inventory loans are

often administered by collateral management companies whose role is to

actively monitor the adequacy of the loan collateral. The cost of such service is

ultimately borne by the borrower, which makes such types of short-term loans

relatively costly in comparison with alternatives.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9

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SOLUTIONS TO REVIEW QUESTIONS

7-l Working capital is usually defined as the firm’s investment in current assets.

Net working capital (NWC) refers to the difference between the firm’s current

assets and its current liabilities, as shown by the equation:

NWC = Current assets – Current liabilities

7-2 Other things remaining the same, the greater the firm’s investment in current

assets, the greater its liquidity. The firm may choose to invest additional funds

in cash and/or marketable securities as a means of increasing its liquidity

(which reduces the risk of illiquidity). However, these asset investments earn

little or no return. Therefore, the firm can reduce its risk of illiquidity only by

reducing its overall return on invested funds and vice versa.

7-3 Advantages and disadvantages of short-term debt (compared to long-term debt):

Advantages

• The interest rate is usually lower for short-term debt (that is, if the term

structure of interest rates is upward-sloping).

• Funds are borrowed only when they are needed and can be repaid, typically

without much penalty, when no longer required.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 10

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 Disadvantages

• Short-term debts must be repaid sooner; hence, there is a greater risk of illiquidity.

• Interest costs on short-term debts vary from year to year, whereas long-term debt

agreements may ‘lock in’ the cost of funds to the firm (if at a fixed rate). Hence,

greater uncertainty (risk) may follow from taking out short-term debt.

7-4 The hedging principle involves matching the maturities of the sources of

financing (of the firm’s assets) with the useful lives of the assets. To implement

the hedging principle, the firm must use long-term sources of funds to finance

the permanent asset investments that are not financed by spontaneous sources

(payables), and also finance with short-term sources of funds all the temporary

asset investments that are not funded by spontaneous sources of financing.

7-5 (a) A permanent investment in an asset is one that the firm expects to hold

for a period longer than one year.

(b) Temporary asset investments are comprised of the firm’s investments in

current assets that will be liquidated and not replaced within the current

year.

(c) Permanent sources of financing include intermediate and long-term

debt, preference shares and ordinary shares.

(d) Temporary financing consists of the various sources of short-term debt

including secured and unsecured bank loans, bank bills, loans secured

by accounts receivable and loans secured by inventories.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 11

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 (e) Spontaneous financing consists of trade credit and other accounts

payable which arise ‘spontaneously’ in the firm’s day-to-day operations.

Examples include wages and salaries payable, accrued interest and

accrued taxation.

7-6 Any classification of the term (time to maturity) of debt is somewhat arbitrary

but, conventionally, long-term sources of funds have maturities longer than five

years. Intermediate-term financing includes those sources of funds having

maturities longer than one but less than five years. Short-term financing must

be repaid within one year.

7-7 The important factors in selecting a source of short-term credit are as follows:

• the effective cost of credit

• the availability of credit, and

• the effect of the use of a particular source of credit on the cost and

availability of other sources of credit.

7-8 (i) ‘2/10, net 30’ means that a 2% discount is offered for payment within

10 days or the full amount is due in 30 days.

(ii) ‘4/20, net 60’ means 4% discount within 20 days, full amount 60 days.

(iii) ‘3/15, net 45’ means 3% within 15 days, full amount 45 days.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 12

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7-9 (a) An overdraft is an agreement between the borrower and the bank as to

the maximum amount of credit (overdraft limit) that the bank will

provide to the borrower at any one time, by allowing the borrower to

make withdrawals (including drawing cheques) from the borrower’s

account. From an accounting viewpoint, an overdrawn balance is a debt

owing to the bank and therefore it represents a debit balance (an asset

account) from the bank’s perspective. An overdraft is an example of

‘revolving credit’, whereby the balance of the account may fluctuate

from credit to debit and back again as long as it does not exceed the

overdraft limit.

(b) A promissory note is a promise by the borrower to pay the lender a

specified amount of money at a specified time in the future in return for

a discounted amount received ‘today’.

(c) The prime rate of interest represents that rate which a bank charges its

most creditworthy borrowers.

(d) A bank bill refers to a bill of exchange that has been ‘accepted’ by a

bank. In effect, this means that the bank guarantees the repayment of the

bill at maturity.

(e) An overdraft limit represents the maximum amount by which the bank’s

customer account can be overdrawn. Therefore, it is the maximum debit

balance that the account can reach (from the bank’s perspective).

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 13

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7-10 (a) A promissory note is essentially a ‘promise’ on the part of the borrower

to repay the lender the face value of the note on maturity. The debt is

‘unsecured’, which means that there is no guarantee that the debt will be

repaid. Because of this, promissory notes are normally only issued by

high-rated borrowers.

(b) A bill of exchange, or commercial bill, is similar to a promissory note,

in that it is a short-term discount security, but the difference is that it is

in effect a written order from the borrower to another party requiring

them to pay the face value of the bill to the holder on maturity. The

effect of this arrangement is that the creditworthiness of the bill depends

on the creditworthiness of the party making the repayment – not the

borrower. (The borrower in turn is liable to repay the party making the

payment.) As long as the party making the payment has a high credit

rating, this enables smaller companies with lower credit ratings to

access short-term debt. It is common for the party making the payment

to the holder to be a bank, in which case the bill is referred to as a bank

bill.

(c) The drawer of a bill is the party ‘drawing up’ the instruction to repay

the face value of the bill to the holder on maturity. This is in effect the

borrower. Once the instruction has been accepted, the bill has value and

can be sold in order to raise the necessary funds.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 14

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 (d) The acceptor of a bill is the party whom the drawer has instructed to

repay the holder of the bill. The instruction is only valid if that party

‘accepts’ the instruction, and will do so for a fee based on the

creditworthiness of the drawer/borrower.

(e) The discounter of a bill is the party that purchases the bill, once it has

been accepted, and thereby effectively is lending the money to the

drawer/borrower. Because the only cash flow to the holder of a bill is

the face value at maturity, the lender will pay a discounted amount

(based on the time value of money) to purchase the bill, and is therefore

referred to as a ‘discounter’.

7-11 Leading is a strategy for managing working capital in a multinational firm that

has a ‘long’ position, which means an excess of assets over liabilities

denominated in a foreign currency. Such a position means there is an adverse

exposure to depreciation of the relevant foreign currency and so the firm should

‘lead’ or speed-up the disposal of assets, before there is further currency

depreciation. In contrast, lagging is the process of delaying payment of a bill

that is denominated in a depreciating currency until the currency has weakened.

7-12 Cash-flow lending refers to situations where banks base assessment of the

borrower’s creditworthiness on the expected ability to repay the debt, which

depends largely on the lender generating sufficient net cash flows during the life of

the loan. In contrast, secured lending assesses creditworthiness on the availability

of security such as assets that can be pledged as collateral for the debt.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 15

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7-13 (a) The overdraft limit is the maximum amount that the borrower can be

overdrawn, i.e. the maximum amount they are able to borrow.

(b) If the overdraft limit has not been reached, a bank will normally charge

an unused limit fee. This fee results from the practice of customers

arranging large overdrafts but not always using them. This represents a

source of liquidity risk for the bank, as it needs to have sufficient funds

available should the customer suddenly decide to draw funds up to the

overdraft limit, without notice. The fee acts as a disincentive to

customers to seek unnecessarily large overdrafts, as well as

compensating the bank for liquidity risk.

(c) If payments from an account exceed the amount deposited, the account

has a negative balance and is said to be ‘overdrawn’. If the customer

repays sufficient funds to restore a positive balance, the account is said

to be in credit. This is because the account is a liability from the point of

view of the bank, and hence a credit on the balance sheet.

(d) An overdraft is a type of revolving credit because the customer can

draw on borrowed funds and repay some or all of those funds at any

time, rather than having to borrow specific amounts from time to time as

required.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 16

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7-14 A bank overdraft is a very flexible source of finance for managing a firm’s cash

position. Once the overdraft has been set up, the firm can borrow (up to the

overdraft limit) and repay some or all of the borrowed funds without notice.

Most other forms of finance require specific arrangements (involving

transaction fees) each time money needs to be borrowed. The other advantage

is that the customer only pays interest on the outstanding balance, rather than

the credit limit (as opposed to other types of loans, where interest is payable on

the total amount of the loan, even if all of those funds are not always required).

The disadvantage is that the interest rate is likely to be higher than for other

types of loans, and the customer is likely to be subject to an unused limit fee in

order to compensate the bank for the credit risk associated with overdrafts.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 17

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SOLUTIONS TO PROBLEMS

Students should be made aware that solutions identified by an asterisk * are also

provided with brief check answers at MyFinanceLab at

www.pearsoned.com.au/myfinancelab

7-1* (a) Tharp’s Tarp’s pro-forma balance sheet appears as follows:

Current Assets $3.50m1 Debt $1.65m2

Fixed Assets 2.00m Equity 3.85m

Total $5.50m $5.50m

The firm’s pro-forma statement of earnings is:

Sales $7,000,000

EBIT 1,050,000

Interest (181,500)3

EBT 868,500

Taxes (30%) (260,550)

Net Income $ 607,950

1
Current assets = 50% of sales of $7 million

2
Debt = 30% of total assets of $5.5 million

3
Interest expense = 11% of debt of $1.65 million

Return on Equity = ($607,950 / 3,850,000) = 15.79%

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 18

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 (b) Current Assets $2.80m1 Debt $1.44m2

Fixed Assets 2.00m Equity 3.36m

Total $4.80m $4.80m

Sales $7,000,000

EBIT 1,050,000

Interest (158,400)3

EBT 891,600

Taxes (267,480)

Net Income $ 624,120

1
Current assets = 40% of sales of $7 million

2
Debt = 30% of total assets of $4.8 million

3
Interest expense = 11% of debt of $1.44 million

Return on equity = ($624,120 / 3,360,000) = 18.58%

c) This is obviously a simplifying assumption. Certainly some positive

return would be expected from added investment in current assets as

shown by the calculated return on equity.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 19

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7-2 (a) Current ratio = $1,250,000 / 1,050,000 = 1.19

Net working capital = $1,250,000 – 1,050,000 = $200,000

Return on total assets = $250,132 / 2,050,000 = 12.20%

Return on equity = $250,132 / 800,000 = 31.27%

(b) Current ratio = $1,250,000 / 250,000 = 5.00

Net working capital = $1,250,000 – 250,000 = $1,000,000

Return on total assets = $266,9321 / 2,050,000 = 13.02%

1
Net income = (401,332 – 20,000) × (1 – 0.3) = 266,932

Return on equity: 266,932 / 1,600,000 = 16.68%

Note: Liquidity has improved dramatically with the current ratio rising

from 1.19 to 5.00 and net working capital from $200,000 to

$1,000,000. However, the return to the ordinary shareholders is

substantially lower due to the reduction of financial leverage.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 20

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 (c) For 3 months inventories and receivables will increase by $800,000.

For the remaining 9 months of the year, $800,000 can be invested in

marketable securities earning 6%.

Net income 401,332

Interest income 36,0001

437,332

Interest expense (100,000)2

337,332

Tax @ 30% (101,200)

Net income $236,132

1
Interest income on marketable securities = $800,000 × 0.06 × 9/12

= $36,000

2
Interest expense: New loan - 800,000 × 0.10 = $80,000

Existing long term - $200,000 × 0.10 = $20,000

Current ratio: 2,050,000 / 250,000 = 8.20

Net working capital: 2,050,000 – 250,000 = $1,800,000

Return on total assets: 236,132 / 2,850,000 = 8.29%

Return on equity: 236,132 / 1,600,000 = 14.76%

Note:The liquidity position has steadily improved as the current ratio and net working

capital are 8.2 and $1,800,000, respectively. However, profitability has steadily

declined due to the cost of permanent financing sources (the loans) exceeding the

earnings on marketable securities. Both total assets and equity are earning less return.

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 21

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7-3* Re-analysis of part (c) of 7-2, assuming that a three-month short-term note is

used instead of bonds:

Net Income 401,332

Interest Expense (40,000)1

361,332

Tax @ 30% (108,400)

Net Income $252,932

1
Interest expense: Short term - 800,000 × 0.10 × 3/12 = $20,000

Long term - $200,000 × 0.10 = $20,000

Current ratio: 2,050,000 / 1,050,000 = 1.95

Net working capital: 2,050,000 – 1,050,000 = $1,000,000

Return on total assets: 252,932 / 2,850,000 = 8.87%

Return on equity: 252,932 / 1,600,000 = 15.81%

© 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 22

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7-4 Instructor's Note: This problem takes the financial planning analysis of Chapter

6 one step further by requiring that a specific financing plan be devised which

meets certain constraints placed on the plan by the firm’s management.

(a) Canoob Wax Ltd: Forecast of Financial Needs (all values in $ millions)

Non- Trade

Curren curren credit Long- Ordinar Add.

Predicte t t Total & term y funds

Year d sales assets1 assets2 assets A/P3 debt4 equity4 needed

20X7 30 7.50 9.0 16.50 3.0 3 9 1.50

20X8 33 8.25 9.6 17.85 3.3 3 9 2.55

20X9 39 9.75 10.2 19.95 3.9 3 9 4.05

2X10 42 10.50 10.8 21.30 4.2 3 9 5.10

2X11 45 11.25 11.4 22.65 4.5 3 9 6.15

1 3
0.25 × Sales 0.10 × Sales
2 4
Growing by $0.6m each year Assumed to remain unchanged

(b) Trade Short- Long-

Total credit & term term Ordinar Current Debt

Year assets A/P debt debt y equity ratio ratio

20X7 16.50 3.0 0.00 3.9 9.60 2.5x 42%

20X8 17.85 3.3 0.00 3.9 10.65 2.5x 40%

20X9 19.95 3.9 0.00 3.9 12.15 2.5x 39%

2X10 21.30 4.2 1.05 3.9 12.15 2.0x 43%

2X11 22.65 4.5 1.05 3.9 13.20 2.0x 42%

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The solution to this part of the problem involves developing a financial plan to raise

the discretionary financing needed (as per part (a)) which satisfies the current ratio and

debt ratio constraints placed upon the plan by management. The solution offered here

is but one of many that satisfies those demands.

7-5 a 365
RATE =  where a = amount of the discount
(1 − a ) ( c − b )
b = the discount period

c = the net period

(a) 0.02 365

RATE =  = 37.24%
(1 − 0.02 ) ( 30 − 10 )
(b) 0.03 365
RATE =  = 75.26%
(1 − 0.03) ( 30 − 15)
(c) 0.03 365
RATE =  = 37.63%
(1 − 0.03) ( 45 − 15)
(d) 0.02 365
RATE =  = 16.55%
(1 − 0.02 ) ( 60 − 15)

EAR = (1 + j / m ) − 1
m
7-6 where j = nominal annual interest rate or APR

m = the number of compounding periods in a year

EAR = (1 + 0.3724 /18.25 )

18.25
(a) − 1 = 44.58%

EAR = (1 + 0.7526 / 24.33)

24.33
(b) − 1 = 109.84%

EAR = (1 + 0.3763 /12.17 )

12.17
(c) − 1 = 44.86%

EAR = (1 + 0.1655 / 8.11)

8.11
(d) − 1 = 17.80%

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7-7 u i  where b = balance of the overdraft (amount overdrawn)
RATE =  L + b  − 1 
b  u 
i = interest rate per annum on the overdrawn amount

L = overdraft limit

U = percentage rate per annum on the unused limit

(a) 0.01   0.10  

RATE = 100, 000 + 60, 000  − 1  = 10.67%
60, 000   0.01  

(b) (i) 0.01   0.10  

RATE = 100, 000 + 80, 000  − 1  = 10.25%
80, 000   0.01  

(ii) 0.01   0.10  

RATE = 100, 000 + 40, 000  − 1  = 11.50%
40, 000   0.01  

(c) There is an inverse relationship between the effective rate paid on the

borrowed funds and the outstanding balance, because of the impact of

the unused limit fee. This would tend to act as a strong disincentive

against obtaining an unnecessarily high overdraft limit.

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7-8 u i  where b = balance of the overdraft (amount overdrawn)
RATE =  L + b  − 1 
b  u 
i = interest rate per annum on the overdrawn amount

L = overdraft limit

U = percentage rate per annum on the unused limit

(a) (i) 0.005   0.09 

RATE =  6, 000, 000 + 2, 400, 000  − 1  = 9.75%
2, 400, 000   0.005  

(ii) 0.005   0.09 

RATE = 10, 000, 000 + 2, 400, 000  − 1  = 10.58%
2, 400, 000   0.005  

(b) Based its current financing needs, the second alternative is more costly

because of the higher amount being paid in unused limit fees. However,

the company needs to evaluate its future need for funds. If it is likely to

require in excess of $6,000,000 in the future, it may be worth accepting

the second offer now, rather than trying to get access to those funds at

short notice when they are required.

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7-9 (a) If A-3 rated companies pay 1.5% more than A-1 rated companies, XYZ

Childcare will pay 6.5% + 1.5% = 8.0%.

(b) P=
365V
=
( 365)( 50, 000, 000 ) = $48,102, 267
365 + RATE ( n ) 365 + ( 0.08 )(180 )

(c) The fee is equal to 0.003 × 50,000,000 = $150,000. Incorporating the

effect of the $150,000 fee, the issue proceeds of $48,102,267 are

reduced to net proceeds of $47,952,267. Thus, the fee can be

incorporated into the interest rate as follows:

365  V  365  50, 000, 000 

RATE =   − 1 =  − 1 = 8.66%
n  P  180  47,952, 267 

7-10 (a) P=
365V
=
( 365)(1, 000, 000) = $975,936
365 + RATE ( n ) 365 + ( 0.10 )( 90 )

(b) The fee is equal to 0.0025 × 1,000,000 = $2,500. Incorporating the

effect of the $2,500 fee, the issue proceeds of $975,936 are reduced to

net proceeds of $9,73,436. Thus, the fee can be incorporated into the

interest rate as follows:

365  V  365  1, 000, 000 

RATE =   − 1 =  − 1 = 11.07%
n  P  90  973, 436 

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7-11 (a) Interest = 0.14 × 100,000 = $14,000

Therefore, the face value (maturity value) of the bill is $114,000.

(b) Alternative A: RATE = 14.00%

Alternative B: RATE = 16,300 / 100,000 = 16.30%

Therefore, Alternative A is the less costly loan.

(c) If the bank (Alternative A) charges a $2,000 arrangement fee (payable

‘upfront’), then the proceeds of the bill P are reduced to $98,000, but the

maturity value V is still the same face value of $114,000. The total cost

(including interest and the upfront fee) is $16,000 and the cost of the

loan is 16,000 / 98,000 = 16.33%

Therefore, Alternative B is now the less costly loan.

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7-12* (i) $500,000 loan = 0.80 × Accounts Receivable

 Accounts receivable = 500,000 / 0.8 = $625,000

Fee = 0.01 × 625,000 = $6,250

Interest cost = 0.11 × 500,000 × 90 / 365 = 13,562

13,562 + 6, 250 365

RATE =  = 16.07%
500, 000 90

(ii) Warehousing cost = 2,000 × 3 months = $6,000

Interest cost = 0.09 × 500,000 × 90 / 365 = 11,096

11, 096 + 6, 000 365

RATE =  = 13.87%
500, 000 90

The insurance company loan secured by inventory would be preferred

since its cost is lower under the conditions presented to S-J.

7-13 P=
365V
=
( 365)( 20, 000, 000 ) = $18, 495, 060
365 + RATE ( n ) 365 + ( 0.11)( 270 )

Incorporating the effect of the $200,000 fee, the issue proceeds of $18,495,060

are reduced to net proceeds of $18,295,060. Thus, the fee can be incorporated

into the interest rate as follows:

365  V  365  20, 000, 000 

RATE =   − 1 =  − 1 = 12.60%
n  P  270  18, 295, 060 

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 365V
7-14* P =
365 + RATE ( n )

First bill: P=
( 365)( 200, 000 ) = $192,867
365 + ( 0.15 )( 90 )

Second bill: P=
( 365)( 200, 000 ) = $192, 638
365 + ( 0.155 )( 90 )

Third bill: P=
( 365)( 200, 000 ) = $193, 442
365 + ( 0.1375 )( 90 )

Establishment fee = 200,000 × 0.4% = $800 payable at commencement.

Stamp duty = 200,000 × 0.05% = $100 payable at day 0, day 90 and day 180.

The total cash flows arising from the bill financing are:

$192,867 $192,638 $193,442

($800) ($200,000) ($200,000)
($100) ($100) ($100) ($200,000)

90 days 180 days 270 days

Hence, the net cash flows are:

$191,967 ($7,462) ($6,658) ($200,000)

90 days 180 days 270 days

The 90-day compound interest rate is obtained by solving the following equation:

7, 462 6, 658 200, 000

191,967 = + +
(1 + RATE ) (1 + RATE ) (1 + RATE )3
2

Using trial and error, a spreadsheet or a financial calculator, the solution is

3.843%. The annual percentage rate (APR) is found as follows:

365
APR = 3.843  = 15.59%
90

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Discovering Diverse Content Through
Random Scribd Documents
side, cutting out old sand bars here and building new ones there, so that the
main channel is never the same for very long at a time.
In Holt County, near Fortescue, there has been a great deal of excitement
lately, caused by the disputes over the possession of some of the land thus
formed, commonly known as “bar land.” Several men had fenced land which
was claimed under deed by John C. Hinkle, a Civil War veteran, who has
lived on this land for the last fifty years. About fifteen years ago the river
took five hundred acres of Mr. Hinkle’s land and afterward put it back as a
bar. Mr. Hinkle claimed the land on the ground that the bar had made to his
land, and the other men claimed it on the ground that it had been put back as
an island, which finally joined Mr. Hinkle’s land, and was therefore as much
theirs as any one’s. The court upheld the squatters’ claim that the land did
not belong to Hinkle, and this decision was the signal for squatters to rush in
and seize bar land all along the river front. In the last thirty days perhaps a
dozen men have settled on these bars.
The fact of possession seems to be given considerable weight in this
matter, and the land has generally been seized in the night. A squatter will
pick out a piece of land that most suits his fancy, get some help, slip in at
night, put a fence around it, and build a shack on it. Of course, it is not much
of a house or much of a fence, but it is enough to establish proof of
possession.
Sometimes two different men will have designs on the same piece of
land, or perhaps the man whose deed calls for this land will offer objections
to its being seized, and these conditions have given rise to several exciting
encounters. Several houses have been torn down, many fences cut to pieces
and in at least one instance men have been escorted from the land of their
choice at the point of a Winchester, with instruction to “beat it” and not to
come back. While no blood has been shed so far, it is freely predicted that it
is only a matter of time until somebody is carried out “feet first.”
The county has ordered the land surveyed, with the intention of selling it
to the highest bidder, but the law says that the ones in possession have a
right to buy it at the highest bid, so that even if the county sells the land, the
ones actually on the ground have a big advantage. This fact will probably
cause others to try to seize land before the survey is made.
The land is not so very valuable except in a dry year, as it is liable to
overflow any time the river rises a few feet.
 Cowboy Sheriff.
Many who have visited the Pawnee Bill and Buffalo Bill Wild-West
Shows wonder what has become of all the likely looking cowboys whose
daring feats ahorse and with the lasso excited wonder and admiration.
Some are with other shows, some perform for moving pictures, but most
of them have quit the business and settled down. Among those who quit
when Pawnee Bill and Buffalo Bill closed is Tom Tait, who has located in
Gillette, Wyo., county seat of Campbell County, where he has been elected
sheriff. All his life has been spent on the cattle ranges of Wyoming,
Montana, and the Dakotas, with the exception of the time he was on the road
with the show. As a tamer of wild horses he has few equals, and as a “cow
hand” none at all.

All Six Died with Boots On.

The Grim Reaper has surely played relentless and strange havoc with the
Law family, of Muscatine, Iowa. Brad E. Law, a popular grocer, died
recently while sitting in a chair at his home. He died “with his boots on,” so
to speak, and so did his two brothers, his father, and his father’s two
brothers. One of the grocer’s brothers, an engineer, was struck by a piece of
a flying wheel, which broke and severed his head, and the other brother died
while at the dinner table. His father died while plowing in the field, and one
of his father’s brothers died in the pulpit, while preaching a sermon. His
father’s other brother died while driving to town on his farm wagon.
They all met death while they were not expecting it. Neither of them was
sick before his death, and sickness was not the cause of any of the deaths.

Tourists Welcome in Canada.

Numerous items have appeared lately in the press, advising residents of
the United States to obtain passports when visiting or passing through
Canada. Officials of the Canadian Pacific Railway made inquiries of the
government at Ottawa whether passports are now required. The government
announces that its officials are in no way interfering with bona-fide tourist
traffic, and that persons desirous of visiting points of interest in Canada or of
passing through Canada en route to other places will be accorded the same
courteous treatment as was customary before the outbreak of war, and that
passports are not required.

Why Belgium Thanks United States.

More than $21,500,000 has been received and the greater part of it spent
for Belgian relief, according to a statement issued in New York by the
commission for relief in Belgium.
One hundred and ten thousand tons of foodstuffs, cargo for twenty ships,
are now on the way to American seaports from interior points, the statement
adds.
Nearly sixty cargoes of foodstuffs, valued at more than $20,000,000, had
been sent to Rotterdam up to the middle of March by the commission.

New Way to Hunt the Coyote.

Hunting coyotes on motor cycles is a popular sport in Sherman County,
Kan. A party of ten young men went coyote hunting in this manner from
there, and in one day succeeded in capturing three of the prairie pests.

New Attachment for Razor.

A Canadian inventor had secured a patent on which appears to be a
simple attachment for converting an ordinary razor into one of the safety
type.
The device consists simply of a piece of springy sheet metal folded so
that it may be slipped over the razor blade. By holding the razor so that the
side of the attachment comes in contact with the face, the right angle for the
blade is attained.

Girl’s Foot Worth $14,000.

Fourteen thousand dollars was the price set on the right foot of a seven-
year-old girl of Kenosha, Wis. A jury in the circuit court awarded that sum to
Minnie Extra, daughter of a Kenosha laborer. A car on the Chicago &
Milwaukee Electric Railway had mangled her foot so that amputation at the
ankle was necessary.
 Dog Politician Aids Master.
Joseph B. Steele, Independent candidate for the mayoralty nomination at
the primaries in Granite City, Mo., has no “houn’ dawg” to aid him, but a
devoted political worker in “Queen,” a bright little terrier. He picked up the
dog on the streets recently and give it a home.
In way of repayment, the dog trotted about the town carrying in its mouth
a card bearing Steele’s picture and an announcement of his candidacy.
According to Steele, the dog is so intelligent that on meeting a doubtful voter
it rises on its hind legs to call the sign more emphatically to his attention.
The dog campaigner attracted much interest in Granite City.
Steele obtained the idea of enlisting Queen from the dog’s fondness for
retrieving sticks and carrying objects about in its mouth. After a short
training in carrying the card, the animal showed a remarkable enthusiasm for
politics.

This Boat Travels on Land.

The visitor to the lumber districts of Canada may occasionally see what is
to him a very remarkable sight—a primitive-looking steamboat high and dry
on a road, crawling along quite comfortably, apparently just as much at
home as in its natural element.
These boats are known as “alligators,” and are used for towing the rafts
of logs down the rivers and lakes to the mills. Sometimes it is desired to
transfer one of these craft to a new sphere of operations, which can only be
reached overland, and the boat is then hauled out of the water, placed upon
rollers, and travels to its destination by means of its own power.

“Dead” Fifty-two Years. Still Alive.

After being mourned as dead for fifty-two years, John Wesley Franse, a
Civil War veteran, has been found living in a small town near San Francisco,
according to a letter received by relatives in St. Louis, Mo. Franse was found
by his sister, Mrs. William H. Marvin, of Kirkwood, a St. Louis suburb.
Franse served in the Confederate army under General Sterling Price. The
entire regiment to which he belonged was captured and placed in the Union
prison at Alton, Ill. Believing that he had died there, members of the Franse
family for more than fifty years visited the Alton cemetery each Decoration
Day and placed flowers on one of the unmarked Confederate graves.
At a social in Los Angeles recently Mrs. Marvin mentioned that her
maiden name was Franse. Another guest said he knew an old man near by
that name, and the search followed which resulted in the finding of the long-
lost veteran.

Found in a Pound of Raisins.

One pound of raisins purchased from a store in Derry Church, Pa., by a
special agent of the dairy and food commission was analyzed by State
Chemist Charles la Wall. He found: Prunes, rice, beans, and fuzzy dirt;
human and animal hairs, straight and curly; fibers of cotton and wool dyed
green, yellow, brown, pink, and gray; straw and a little bit of bran, sand,
cornstarch, broken wheat, and yeast spores; pine wood and fragments of
unidentified other timber; tobacco leaf, cigarette paper, and cigarette
tobacco. Also, the wings and legs of a few unfortunate insects. Otherwise the
raisins were all right. The groceryman was arrested.

McManus Sisters in Doubt.

That adequate reparation for the murder of John B. McManus, the former
Chicagoan, killed on his ranch outside of Mexico City, would not be exacted
by the United States government is the belief expressed by his two sisters
living in Chicago. They have taken the matter up with a number of Chicago
Congressmen.
“I doubt if a proper indemnity will ever be paid Mrs. McManus,” said
Miss Elizabeth McManus, when seen with her sister, Mrs. Mary Dorgan.
“And it seems as if the matter of bringing the murderers to justice would also
be allowed to lapse, as in other cases. Outrages were committed against the
sisters of the Sacred Heart in Mexico City, and I find the state department
did nothing further than to complain to the Mexican government.”
A letter from Counselor Lansing informed Miss McManus the Brazilian
minister had placed the “full facts” before the new minister of Mexican
foreign affairs.

This Potato King is a “Jap.”

 Reading a story of the visit of George Shima, the potato king of Lodi,
Cal., to Los Angeles, in a paper of that city, merchants of Lodi recall that not
many years ago the Japanese capitalist could not obtain credit in the stores of
this city, not because he was not honest, but as a newcomer he had not
established credit.
Those business men who refused to trust him did not anticipate that in a
few years Shima would control 37,000 acres in California and have 6,000
acres in his own holdings, and have established a large credit in California
banks.
Last July Shima owned about a quarter of the 4,000,000 sacks of potatoes
in California, and to-day he owns half of the 500,000 sacks unsold in the
State.
 Ready for the Golden Shore.
William Reid, a negro, who has lived in Red Bank, N. J., since he was
mustered out of the Union army in 1865, celebrated his seventy-fifth
birthday and vouchsafed the information that he had made preparations for
a pleasant funeral.
He told his friends he dug his own grave in Whiteridge Cemetery, South
Eatontown, four years ago, and that a slab now covers the space which he
some day expects to fill.
During his spare moments he has constructed his own coffin, and this is
stored with Reid’s favorite undertaker. Reid told his friends that while he
was ready for the golden shore, he didn’t care how long the storage charges
continued.

Unique Fire Tower in Forest.

Harry Childers, of La Pine, Ore., has been appointed fire guard by the
forest service for the Rosland ranger station. The lookout at this station is
one of the most unique in the State, being a 250-foot tower built on a big
yellow pine. The trunk of the tree is divided about twenty feet from the
ground and forms two parallel supports for the tower up to a height of
nearly 200 feet. The lookout’s station in the top of the tower sways from
two to ten feet in the wind.

Forty-one Years Postmaster.

John K. Gaither, for forty-one years postmaster at La Center, Wash., a
few miles northeast of Ridgefield, will retire from the service as soon as
Patrick M. Kane, recently appointed, can file his bond and get his
commission.
Mr. Gaither, who is seventy-six years old, came west from Indiana in the
year of 1873, and the following year was appointed postmaster. When he
took over the La Center post office, there were only four patrons who
subscribed for newspapers. Mr. Gaither is hale and hearty and active in
several societies.

Jailer’s Order Kicked Back.

 For permitting a prisoner to leave the jail before completing the reading
of three chapters in the Bible, Jack Sheehan, warden of the city prison, in
Johnston, Pa., was sentenced by Mayor Joseph Cauffel to read the same
three chapters of the book of Corinthians. Sheehan did it.
J. R. Edwards had appeared before the mayor on a charge of having
imbibed too freely. He was sentenced to read the three chapters aloud, and
Warden Sheehan was delegated to listen to see that the sentence was fully
complied with. Sheehan could not stand the prisoner’s reading and told him
to go, it is alleged. Sheehan was then sentenced to do the reading.

Kentucky Woman, 112.

“Aunt Crissie” Stallard, who is probably the most noted woman in
Kentucky, has just celebrated her one-hundred-and-twelfth birthday, and is
still hale and hearty. “Aunt Crissie” was born in West Virginia and came to
Kentucky at the age of twenty, and married James Stallard that same year.
Her husband died twenty years later.
This aged woman has outlived all of her children except one who has
been helpless for years. She is still living on her farm, near Hilliard, where
she lived in 1823. She does all her own work—milking, gardening, getting
her own firewood, just as she did back in the old days.
Her neighboring friends have offered to supply her with plenty of coal,
but thus far she has repeatedly refused their offers. Aunt Crissie has a farm
of 240 acres of land, with mineral and timber on it. Companies have offered
large sums of money for the farm, but her reply is always the same: “I will
never sell so long as I can provide for myself.”

Through High School at Ten.

Whitesburg, Ky., can perhaps boast of the youngest high-school graduate
in the State. Miss Grace Newman, ten years old, daughter of Attorney J. H.
Newman, of that place, is the heroine. Having entered the high-school
examination at Whitesburg, and averaging among the best, she received her
diploma and a good compliment. She is exceedingly small for one of her
age.

Traded a Colt for 160 Acres.

 Charles Watson, of Fort Scott, Kan., swapped a two-year-old colt for 160
acres of land in 1856, and the man rode the colt away because he feared
Watson would go back on the deal. To-day the land is worth at least
$16,000, and “Uncle Charlie,” as Watson is familiarly called, is rich. He is a
veteran of the Civil War.

Thousand Killed in Mines.

More than 1,000 lives were lost in and about the mines of Pennsylvania
in 1914, according to statistics made public by the state department of
mines. Six hundred men and boys were killed in the anthracite mines—a
reduction of twenty-four, compared with 1913—and 413 lost their lives in
the bituminous regions—a decrease of 198, compared with the previous
year.
The total production of coal in the State was 237,251,835 tons. The
anthracite output amounted to 91,367,305 tons, a decrease of 259,659
compared with 1913, and the bituminous production was 145,884,530 tons,
a decrease of 27,081,129 tons compared with the previous year. The number
of persons employed in and about the mines last year was 376,831.

Some Quaint Tricks of the Numeral Nine.

There are some curious facts and fancies connected with numbers. The
number nine is, perhaps, the first as regards such experiments, although
number seven is more prominent in literature and history. When you once
use it you can’t get rid of it. It will turn up again, no matter what you do to
put it “down and out.”
All through the multiplication table the product of nine comes to nine.
No matter what you multiply with or how many times you repeat or change
the figures, the result is always the same.
For instance, twice nine equals eighteen; add eight and one, and you
have nine. Three times nine equals twenty-seven; two and seven make nine
again. Go on until you try eleven times nine equals ninety-nine. This seems
to bring an exception. But add the digits—nine and nine make eighteen; and
again, one and eight make nine. Go on to an indeterminable extent and the
thing continues. Take any number at random. For example, 450 times nine
equals 4,050, and the digits, added, make nine once more. Take 6,000 times
9, equals, 54,000, and again you have five and four.
Take any rows of figures, reverse the order, and subtract the lesser from
the greater—the difference will certainly be always nine or a multiple of
nine. For example, 5,071 minus 1,705 equals 3,366. Add these digits and
you have eighteen, and one and eight make the familiar nine.
You have the same result no matter how you raise the numbers by
squares and cubes.
One more way is given by which number nine shows its strange powers.
Write down any number you please, add its digits, and then subtract the
sum of said digits from the original number. No matter what numbers you
start with, the sum of the digits in the answer will be nine.
Try these experiments, and you will be delighted with the exact manner
in which they prove the statement. Some quaint puzzles have been made
based on these fixed principles.

Launch New United States Ship in June.

The new superdreadnaught Arizona will be launched early in June. As
soon as it takes the water, preparations will begin for the laying of the keel
of the still greater superdreadnaught California. The launching of the
Arizona is expected to prove one of the greatest naval celebrations in the
history of New York.

Ninety-pound Voter, Still in Knee Pants.

John Smith, of Recluse, Miss., still in knee pants and weighing a little
less than ninety pounds, is the smallest voter in the South. John attained his
majority a few days ago and hastened to the depot for a ticket to Gulfport,
the county seat, to get out his registration papers and be qualified as a full-
sized man voter.
When he asked for the ticket, the agent handed him a child’s half-fare
one. John was set back at this, but remarked that the agent didn’t know
anything anyway. He would show them something when he came back
from Gulfport.
When the conductor passed him in the train and shouted “Ticket,
sonny!” John wanted to fight, but again he managed to control himself.
 When he entered the court clerk’s office in Gulfport, he was asked:
“Want an errand boy’s job, kiddo?”
“No, dog-gone it,” yelled John, “I want to register.”
“The deuce you do,” shouted the clerk. But John submitted birth-
registration papers and took oath as to his age. He was registered and now
had the right to vote. His chest swelled.
Just at that time the candidate for next term of court clerk entered and
said, “Hello, kid.” “Now, that’s where you lost a vote,” answered John
indignantly. The candidate apologized when he learned the facts.
John, with his ninety pounds, knee pants, and registration papers, went
back to Recluse. He now struts about the town discussing the tariff, the
effect of the Mexican situation on the chances of the Democratic party, and
everything his father talks about. And he doesn’t stand for any “kidding”
about it, either.

Man Shows a Prophetic Egg.

J. P. Edwards was in Piggott, Ark., recently, showing a curious egg one
of his hens laid the day before, and the exhibit surely aroused the most
profound wonderment. The egg is an ordinary one in shape and size, but on
the surface of the snow-white shell there appear to be faint maps of the
eastern and western hemispheres. North and South America are intact,
except a part of the extreme southern point, the Gulf of Mexico and Panama
Canal being plainly shown.
On the eastern hemisphere everything looks as though having been torn
by cyclonic winds and in danger of being scattered to the “four corners of
the earth,” wherever they are.
Some say this freak egg is simply one result of the European war,
earthquakes, land monopoly, et cetera. Those who are of prophetic vision
see “signs” in this egg which prognosticate the future face of the world.

Girl Plumber-Butcher Quits Her Laundry.

“Cattle are more interesting than clothes,” says Miss Allie Pitts, of
Eureka Springs, Ark., who has forsaken the butcher business to run a
laundry. Miss Pitts is twenty-seven years old. She was accustomed to killing
her own cattle and hogs when she was in the meat business. This summer
she plans to quit the laundry, buy a cattle ranch, and ship her own stock to
market.
Before she became a butcher Miss Pitts was a plumber. At an age when
most girls are giggling over beaus and party dresses, this mountain girl was
repairing broken water pipes and defective drains.
“I guess it’s because I’m just naturally odd,” she says bashfully when
asked how she came to choose such odd professions. “I went to keeping
books in a meat shop, and one day when the butcher was taken sick I
offered to take his place. Then I bought a shop of my own in Granby, Mo.
With the help of a man I employed I did all my own butchering, cutting up
the beef, and rendering the lard. I knocked the animals in the head as they
came down the runway. Oh, yes, I hated it at first, but I soon got used to it.
Some way I hated worst to kill the hogs.
“Cattle are interesting,” she continued musingly; “much more interesting
than clothes. I’m going back into the cattle business.”
The restrictions of corsets, high heels, and frills are unknown to this
wholesome mountain girl. She dresses very plainly in a short, dark skirt,
mannish waist and tie, and knockabout hat. She has mild blue eyes, curling
dark hair, and talks with a little lisp.

Edison Will Make Benzol.

Another step for the manufacture of benzol in this country has been
taken. Thomas A. Edison has opened a factory in Johnstown, Pa., for the
manufacture of benzol from coal gas, a process never before developed in
this country.
Carbolic acid and aniline dyes are made from benzol, which heretofore
has come chiefly from Germany. Since the war there has been a great
shortage of this product, and chemists and manufacturers have given much
attention to producing it in this country. Recently Secretary of the Interior
Lane announced that Doctor Rittman, one of the department’s chemists, had
discovered a method of producing benzol from petroleum, and this week he
announced that he had made arrangements with a manufacturing firm to use
the Rittman method.

Rancher Battles with Trapped White Wolf.

 John S. Sherrod, the rancher near Glenwood Springs, Col., who caught a
huge white wolf in his traps near Fruita, was in Glenwood Springs and
admitted having experienced a very thrilling time in connection with the
wolf, and the near loss of his life in the Grand River.
The wolf was caught on the south side of the Grand River, and Sherrod
had to cross in a boat. When landing on the north bank, the wolf sprang at
the trapper, who grappled with the beast in order to save his life. The strain
on the chain attached to the trap was too much with the two pulling on it,
and it gave way, allowing the wolf and his captor to drop into the river,
which is quite swift at this point.
Sherrod was almost drowned in his efforts to keep the wolf’s head under
water, but he finally succeeded in besting the animal, which he pulled out
on the bank and killed with a club.
The wolf’s pelt is worth one hundred dollars, and Sherrod seems to think
he earned every cent of it.

Some Facts You May Not Know.

Among the rare specimens not open to public inspection in the Harvard
Zoölogical Museum is what is asserted to be the largest frog in the world. It
weighs about six pounds, is twenty-seven inches long from tip to toe, and of
a slaty-black color. Its web feet are equal in size to those of a large swan.
Only three of its kind have ever reached the United States.
The smallest cows in the world are found in the Samoan Islands. The
average weight does not exceed 150 pounds, while the bulls weigh about
200 pounds. They are about the size of merino sheep.
The Siamese have a superstitious dislike of odd numbers, and they
studiously strive to have in their own houses an even number of windows,
doors, rooms, and cupboards.
There is a tribe of Indians in Mexico whose language is limited to about
300 words and who cannot count more than ten.
Next to the United States, Germany has the greatest number of telegraph
offices and the largest line mileage.
Sugar exists in the sap of about 190 plants and trees.
The Chinese pupil reciting his lesson turns his back on the tutor.
 Warships taking refuge in a neutral port are liable to be disarmed after
twenty-four hours.
In some parts of Siberia milk is sold frozen around a piece of wood,
which serves as a handle to carry it.
Herons, which average only four pounds in weight, often have been
known to eat more than three pounds of fish at a meal.
In 1850 only one woman worked for wages to every ten men; now the
ratio is one woman to four men.

His Second Fall Cures Him.

There was a man in our town,

And he was wondrous wise;
He jumped into a bramble bush
And scratched out both his eyes;
And when he saw his eyes were out
With all his might and main,
He jumped into the bramble bush
And scratched them in again.

W. J. Parker, a Corunna, Mich., lawyer, unwittingly took the part of the

wise man in the Mother Goose story, with results as satisfactory as the tale
sets forth. He recently slipped on an icy sidewalk and sustained a sprain of
his ankle that compelled him to hobble about on crutches.
On a recent evening when he started down cellar to fix the furnace fire,
he slipped and fell downstairs, and when he picked himself up, found his
ankle was all right again and that he could walk without crutches and
without pain.
Surgeons who examined the ankle say the first fall caused an obscure
dislocation and that the second one reduced it. Parker has discarded the
crutches permanently.

Has Lived Seventy-two Years on Same Farm Land.

Luman Owen, resident of Oak Grove, Wis., who has lived on the same
farm seventy-two years, says he is the oldest living white person in
Wisconsin who was born in the Badger State.
 “My father came to Oak Grove, Dodge County, with his family and took
up land from the government in the fall of 1842, which is seventy-two years
this last fall,” said Mr. Owen. “I have lived on that same land continuously
ever since, and am the last survivor of the family of nine persons. However,
this was not their first place of settlement in Wisconsin. They came to
Waukesha in the fall of 1836, from Ogdensburg, N. Y., and were on a boat
from the time they left Ogdensburg, until they landed in Milwaukee, seven
weeks and four days. They could have walked the distance in less time than
that.
“My father took up land from the government in Waukesha, then called
Prairieville, and there, in the spring of 1837, I was born. In 1842 our family
moved to Dodge County, and again took up land from the government, the
patents for which are signed by President James K. Polk. There was no
homestead law in those days. Land had to be bought from the government
at one dollar and twenty-five cents per acre.
“When we came here, this part of the country was wilderness, inhabited
by wild animals and Indians, but it settled up fast, and as soon as people
began to raise more than they wanted for their own use, the next thing was
to get to market. We were sixty-five miles from Milwaukee, where all
surplus farm products had to be hauled, and most invariably by an ox team,
which was a long, tedious journey. If a man took in a load of produce to
market and was fortunate enough to get a load of merchandise or
immigrants or something of the kind to bring back, he would come out
about even financially. But if he failed to get the load back, he would come
home owing hotel bills along the road.”

Man Who Dumped Brewery is Dead.

Reverend Abraham de Kack, one-time prosperous brewer, who emptied
the contents of his brewing plant into Grand River and later became a
Methodist minister, is dead in Ionia, Mich., of pneumonia.
De Kack, more generally known as “De Quack,” and familiarly to his
immediate circle of acquaintances as “Quackie,” which appellation is by no
means lacking in the respect that it would seemingly fail to convey, was
once a brewer in Holland, and later a celery grower, and finally a preacher
of the gospel.
 It was many years ago that De Kack brewed beer—it was considered
good beer, too—but when he saw the harm that alcohol does, even in small
amounts, he at once went to his little brewery, discharged the help, opened
up the spigots of the beer vats, and, at the loss of a small fortune to himself,
drained all the beer into the sewers. Then he became a minister.
It was a habit of De Kack’s to pay his hired help daily as far as possible,
for he took seriously the biblical saying: “Owe no man.” Martin Dows, of
Grand Rapids, one of De Kack’s employees, received his pay every night
for twenty-nine years.

Old Nag Dies After Race.

After serving his master, Peter l’Heureux, of Marlboro, Mass., for the
most of his twenty-six years of life, Mr. l’Heureux’s faithful family horse,
either out of shame because he was beaten or because he felt bad about
putting his owner out of pocket, turned around and died after he had just
lost the second straight out of three heats in a race against the equine owned
by Joseph Chaput on the Lakeside Avenue Straightaway.
For some time there had been arguments between the two men relative to
the merits of their horses as “steppers.” It was decided to settle the matter.
Bets were placed and all concerned repaired to the scene of contest. There
were friends of both parties, probably 500 in all, assembled to see some free
racing.
The distance was to be a quarter mile, best two heats out of three, and,
after the stationing of officials, the race was on. L’Heureux’s horse was
beaten by a good ten yards in the first heat and was a bad second in the next
sprint. The animal was just turned round by the driver and headed in the
direction of home when it suddenly pitched out of the shafts—dead.

“Boy” Prisoner Proves to be Married Woman.

After fraternizing with men prisoners in the jail and sharing a cell with
Robert Stewart for several months, “Frank A. Dawson,” alias “Frank
Morris,” of Oklahoma, arrested in Sutton, W. Va., on a charge of burglary,
was found to be a woman.
Dawson, who appeared to be a youth of sixteen years, sent a note to
Jailer Hyer, when her case was to have been called in court, and informed
him that she was in disguise.
Dawson’s story was confirmed by a matron, and she further asserted that
she is Mrs. Frank C. Dawson, of Clarksburg, and that she has a mother,
brother, and a young child residing in that city.
Mrs. Dawson is a very pretty young woman. She and Stewart have
occupied the same cell at night and she has daily associated with the other
prisoners in the corridors. Stewart asserts that he was not aware of her sex.
According to the police, Dawson and Stewart are responsible for a
number of daring burglaries in this vicinity, in which they are said to have
made away with several thousand dollars’ worth of jewelry and valuables.

Boy Risks Life for Thirty-five Cents.

While Lee Mills, nineteen years old, was returning to his home in Webb
City, Mo., from a “movie” show, at a late hour, two rough-bearded men
stepped from behind the corner of a building, each holding an automatic
revolver, and commanded “Hands up!” Instead of complying, young Mills,
who was carrying an umbrella, used the latter as a “spear” and attacked the
two holdup men. They opened fire upon him, but Mills, undaunted,
continued to use his stout umbrella until he had put both men to flight. They
fired many shots at him, but only one took effect, striking him in the right
arm and passing through the fleshy part, without breaking any bones.
When young Mills was taken to a hospital for treatment, the doctor,
thinking his patient must have a considerable sum of money with him to
have put up so fierce a fight against such odds, asked him if he wanted his
valuables taken care of.
“Oh, no,” replied Mills, “it isn’t necessary, as I only have thirty-five
cents,” which statement proved true.

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 The Nick Carter Stories
ISSUED EVERY SATURDAY BEAUTIFUL COLORED COVERS
When it comes to detective stories worth while, the Nick Carter Stories
contain the only ones that should be considered. They are not overdrawn
tales of bloodshed. They rather show the working of one of the finest minds
ever conceived by a writer. The name of Nick Carter is familiar all over the
world, for the stories of his adventures may be read in twenty languages. No
other stories have withstood the severe test of time so well as those
contained in the Nick Carter Stories. It proves conclusively that they are
the best. We give herewith a list of some of the back numbers in print. You
can have your news dealer order them, or they will be sent direct by the
publishers to any address upon receipt of the price in money or postage
stamps.
704—Written in Red.
707—Rogues of the Air.
709—The Bolt from the Blue.
710—The Stockbridge Affair.
711—A Secret from the Past.
712—Playing the Last Hand.
713—A Slick Article.
714—The Taxicab Riddle.
717—The Master Rogue’s Alibi.
719—The Dead Letter.
720—The Allerton Millions.
728—The Mummy’s Head.
729—The Statue Clue.
730—The Torn Card.
731—Under Desperation’s Spur.
732—The Connecting Link.
733—The Abduction Syndicate.
736—The Toils of a Siren.
738—A Plot Within a Plot.
739—The Dead Accomplice.
741—The Green Scarab.
746—The Secret Entrance.
747—The Cavern Mystery.
748—The Disappearing Fortune.
749—A Voice from the Past.
752—The Spider’s Web.
753—The Man With a Crutch.
754—The Rajah’s Regalia.
755—Saved from Death.
756—The Man Inside.
757—Out for Vengeance.
758—The Poisons of Exili.
759—The Antique Vial.
760—The House of Slumber.
761—A Double Identity.
762—“The Mocker’s” Stratagem.
763—The Man that Came Back.
764—The Tracks in the Snow.
765—The Babbington Case.
766—The Masters of Millions.
767—The Blue Stain.
768—The Lost Clew.
770—The Turn of a Card.
771—A Message in the Dust.
772—A Royal Flush.
774—The Great Buddha Beryl.
775—The Vanishing Heiress.
776—The Unfinished Letter.
777—A Difficult Trail.
782—A Woman’s Stratagem.
783—The Cliff Castle Affair.
784—A Prisoner of the Tomb.
785—A Resourceful Foe.
789—The Great Hotel Tragedies.
795—Zanoni, the Transfigured.
796—The Lure of Gold.
797—The Man With a Chest.
798—A Shadowed Life.
799—The Secret Agent.
800—A Plot for a Crown.
801—The Red Button.
802—Up Against It.
803—The Gold Certificate.
804—Jack Wise’s Hurry Call.
805—Nick Carter’s Ocean Chase.
806—Nick Carter and the Broken Dagger.
807—Nick Carter’s Advertisement.
808—The Kregoff Necklace.
810—The Copper Cylinder.
811—Nick Carter and the Nihilists.
812—Nick Carter and the Convict Gang.
813—Nick Carter and the Guilty Governor.
814—The Triangled Coin.
815—Ninety-nine—and One.
816—Coin Number 77.
NEW SERIES
NICK CARTER STORIES
1—The Man from Nowhere.
2—The Face at the Window.
3—A Fight for a Million.
4—Nick Carter’s Land Office.
5—Nick Carter and the Professor.
6—Nick Carter as a Mill Hand.
7—A Single Clew.
8—The Emerald Snake.
9—The Currie Outfit.
10—Nick Carter and the Kidnapped Heiress.
11—Nick Carter Strikes Oil.
12—Nick Carter’s Hunt for a Treasure.
13—A Mystery of the Highway.
14—The Silent Passenger.
15—Jack Dreen’s Secret.
16—Nick Carter’s Pipe Line Case.
17—Nick Carter and the Gold Thieves.
18—Nick Carter’s Auto Chase.
19—The Corrigan Inheritance.
20—The Keen Eye of Denton.
21—The Spider’s Parlor.
22—Nick Carter’s Quick Guess.
23—Nick Carter and the Murderess.
24—Nick Carter and the Pay Car.
25—The Stolen Antique.
26—The Crook League.
27—An English Cracksman.
28—Nick Carter’s Still Hunt.
29—Nick Carter’s Electric Shock.
30—Nick Carter and the Stolen Duchess.
31—The Purple Spot.
32—The Stolen Groom.
33—The Inverted Cross.
34—Nick Carter and Kono McCall.
35—Nick Carter’s Death Trap.
36—Nick Carter’s Siamese Puzzle.
37—The Man Outside.
38—The Death Chamber.
39—The Wind and the Wire.
40—Nick Carter’s Three Cornered Chase.
41—Dazaar, the Arch-Fiend.
42—The Queen of the Seven.
43—Crossed Wires.
44—A Crimson Clew.
45—The Third Man.
46—The Sign of the Dagger.
47—The Devil Worshipers.
48—The Cross of Daggers.
49—At Risk of Life.
50—The Deeper Game.
51—The Code Message.
52—The Last of the Seven.
53—Ten-Ichi, the Wonderful.
54—The Secret Order of Associated Crooks.
55—The Golden Hair Clew.
56—Back From the Dead.
57—Through Dark Ways.
58—When Aces Were Trumps.
59—The Gambler’s Last Hand.
60—The Murder at Linden Fells.
61—A Game for Millions.
62—Under Cover.
63—The Last Call.
64—Mercedes Danton’s Double.
65—The Millionaire’s Nemesis.
66—A Princess of the Underworld.
67—The Crook’s Blind.
68—The Fatal Hour.
69—Blood Money.
70—A Queen of Her Kind.
71—Isabel Benton’s Trump Card.
72—A Princess of Hades.
73—A Prince of Plotters.
74—The Crook’s Double.
75—For Life and Honor.
76—A Compact With Dazaar.
77—In the Shadow of Dazaar.
78—The Crime of a Money King.
79—Birds of Prey.
80—The Unknown Dead.
81—The Severed Hand.
82—The Terrible Game of Millions.
83—A Dead Man’s Power.
84—The Secrets of an Old House.
85—The Wolf Within.
86—The Yellow Coupon.
87—In the Toils.
88—The Stolen Radium.
89—A Crime in Paradise.
90—Behind Prison Bars.
91—The Blind Man’s Daughter.
92—On the Brink of Ruin.
93—Letter of Fire.
94—The $100,000 Kiss.
95—Outlaws of the Militia.
96—The Opium-Runners.
97—In Record Time.
98—The Wag-Nuk Clew.
99—The Middle Link.
100—The Crystal Maze.
101—A New Serpent in Eden.
102—The Auburn Sensation.
103—A Dying Chance.
104—The Gargoni Girdle.
105—Twice in Jeopardy.
106—The Ghost Launch.
107—Up in the Air.
108—The Girl Prisoner.
109—The Red Plague.
110—The Arson Trust.
111—The King of the Firebugs.
112—“Lifter’s” of the Lofts.
113—French Jimmie and His Forty Thieves.
114—The Death Plot.
115—The Evil Formula.
116—The Blue Button.
117—The Deadly Parallel.
118—The Vivisectionists.
119—The Stolen Brain.
120—An Uncanny Revenge.
121—The Call of Death.
122—The Suicide.
123—Half a Million Ransom.
124—The Girl Kidnapper.
125—The Pirate Yacht.
126—The Crime of the White Hand.
127—Found in the Jungle.
128—Six Men in a Loop.
129—The Jewels of Wat Chang.
130—The Crime in the Tower.
131—The Fatal Message.
132—Broken Bars.
Dated March 27th, 1915.
133—Won by Magic.
Dated April 3d, 1915.
134—The Secret of Shangore.
Dated April 10th, 1915.
135—Straight to the Goal.
Dated April 17th, 1915.
136—The Man They Held Back.

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 *** END OF THE PROJECT GUTENBERG EBOOK NICK CARTER
STORIES NO. 140, MAY 15, 1915: THE MELTING-POT ***

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