Homework Answers
| a..Loan from Bank | ||
| Value of Marlow's accounts receivables pledged | 1000000/12 mths.*3 mths.= | 1000000 |
| Bank loan agreed | 1000000*75%= | 750000 |
| Short-term credit reqd. by Marlow | 540000 | |
| Interest amt.for the 3 mths. | 540000*11%/360*90= | 14850 |
| Plus Fees on the whole A/cs receivables pledged | 1000000*1%= | 10000 |
| Total cost to procure $ 540000 loan (for 3 mths.) | 24850 | |
| Expressed as a % of $ 540000 | 24850/540000= | 4.60% |
| This is for 90 days | ||
| so, APR will be | 24850/540000/90*360= | 18.41% |
| b. Loan from the insurance company: | ||
| Interest cost on loan | 540000*9%*90/360= | 12150 |
| Total cost towards field-warehouse agreement | 1500*3= | 4500 |
| Total cost to procure $ 540000 loan (for 3 mths.) | 16650 | |
| Expressed as a % of $ 540000 | 16650/540000= | 3.08% |
| This is for 90 days | ||
| so, APR will be | 16650/540000/90*360= | 12.33% |
| Answer: | ||
| The cost or APR of pledging A/cs receivables | 18.41% | |
| The cost or APR of the loan secured by inventory | 12.33% | |
| Marlow should select secured by inventory Loan , since its cost is lower under the conditions presented. | ||
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