Inventory financing- Raymond Manufacturing faces a liquidity crisis—it needs a loan of$145,000 for 1 month. Having no
Posted: Wed Apr 06, 2022 9:03 am
Inventory financing- Raymond Manufacturing faces a
liquidity crisis—it needs a loan of$145,000 for 1
month. Having no source of additional unsecured borrowing,
the firm must find a secured short-term lender.
The firm's accounts receivable are quite low, but its
inventory is considered liquid and reasonably good collateral. The
book value of the inventory is $435,000, of
which $174,000 is finished goods. (Note: Assume
a 365-day year.)
1) City-Wide Bank will make a $145,000 trust
receipt loan against the finished goods inventory. The annual
interest rate on the loan is 11.8% on the outstanding
loan balance plus a 0.22% administration fee levied
against the $145,000 initial loan amount. Because it will
be liquidated as inventory is sold, the average amount owed
over the month is expected to be $102,876.
(2) Sun State Bank will lend $145,000 against
a floating lien on the book value of inventory for
the 1-month period at an annual interest rate
of 12.6%.
(3) Citizens' Bank and Trust will
lend $145,000 against a warehouse receipt on the
finished goods inventory and charge 15.4% annual interest
on the outstanding loan balance. A 0.53% warehousing fee
will be levied against the average amount borrowed. Because the
loan will be liquidated as inventory is sold, the average
loan balance is expected to be $87,000.
liquidity crisis—it needs a loan of$145,000 for 1
month. Having no source of additional unsecured borrowing,
the firm must find a secured short-term lender.
The firm's accounts receivable are quite low, but its
inventory is considered liquid and reasonably good collateral. The
book value of the inventory is $435,000, of
which $174,000 is finished goods. (Note: Assume
a 365-day year.)
1) City-Wide Bank will make a $145,000 trust
receipt loan against the finished goods inventory. The annual
interest rate on the loan is 11.8% on the outstanding
loan balance plus a 0.22% administration fee levied
against the $145,000 initial loan amount. Because it will
be liquidated as inventory is sold, the average amount owed
over the month is expected to be $102,876.
(2) Sun State Bank will lend $145,000 against
a floating lien on the book value of inventory for
the 1-month period at an annual interest rate
of 12.6%.
(3) Citizens' Bank and Trust will
lend $145,000 against a warehouse receipt on the
finished goods inventory and charge 15.4% annual interest
on the outstanding loan balance. A 0.53% warehousing fee
will be levied against the average amount borrowed. Because the
loan will be liquidated as inventory is sold, the average
loan balance is expected to be $87,000.