What is the dollar cost of the trust receipt loan? Which plan would be recommended and why? If the firm made a purchase of $124000 with terms 1/10 net 30 would it increase the firm's profitability to give up the discount and not borrow as recommended? Why or why not?

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Inventory financing Raymond Manufacturing faces a liquidity crisis-it needs a loan of $124,000 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 $372,000, of which $148,800 is finished goods. (Note: Assume a 365-day year.) (1) City-Wide Bank will make a $124,000 trust receipt loan against the finished goods inventory. The annual interest rate on the loan is 11.6% on the outstanding loan balance plus a 0.13% administration fee levied against the $124,000 initial loan amount. Because it will be liquidated as inventory is sold, the average amount owed over the month is expected to be $92,170. (2) Sun State Bank will lend $124,000 against a floating lien on the book value of inventory for the 1-month period at an annual interest rate of 13.2%. (3) Citizens' Bank and Trust will lend $124,000 against a warehouse receipt on the finished goods inventory and charge 15.5% annual interest on the outstanding loan balance. A 0.69% 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 $74,400. Inventory financing Raymond Manufacturing faces a liquidity crisis-it needs a loan of $124,000 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 $372,000, of which $148,800 is finished goods. (Note: Assume a 365-day year.) (1) City-Wide Bank will make a $124,000 trust receipt loan against the finished goods inventory. The annual interest rate on the loan is 11.6% on the outstanding loan balance plus a 0.13% administration fee levied against the $124,000 initial loan amount. Because it will be liquidated as inventory is sold, the average amount owed over the month is expected to be $92,170. (2) Sun State Bank will lend $124,000 against a floating lien on the book value of inventory for the 1-month period at an annual interest rate of 13.2%. (3) Citizens' Bank and Trust will lend $124,000 against a warehouse receipt on the finished goods inventory and charge 15.5% annual interest on the outstanding loan balance. A 0.69% 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 $74,400.