The Sean- Janeow Import Co. needs $ 500,000 for the 3- month period ending September 30, 2013. The firm has explored two possible sources of credit.
a. S- J has arranged with its bank for a $ 500,000 loan secured by its accounts receivable. The bank has agreed to advance S- J 80 percent of the value of its pledged receivables at a rate of 11 percent plus a 1 percent fee based on all receivables pledged. S- J’s receivables average a total of $ 1 million year- round.
b. An insurance company has agreed to lend the $ 500,000 at a rate of 9 percent per annum, using a loan secured by S- J’s inventory of salad oil. A field- warehouse agreement would be used, which would cost S- J $ 2,000 a month. Which source of credit should S- J select? Explain.

  • CreatedSeptember 11, 2015
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