(Cost of secured short-term credit) The Marlow Sales and Distribution Co. needs $500 comma 000 for the 3-month period ending September 30, 2018. The firm has explored two possible sources of credit.

a. Marlow has arranged with its bank for a $500 comma 000 loan secured by its accounts receivable. The bank has agreed to advance Marlow 70 percent of the value of its pledged receivables at a rate of 12 percent plus a 2 percent fee based on all receivables pledged. Marlow's receivables average a total of $1 million year-round.

b. An insurance company has agreed to lend the $500 comma 000 at a rate of 10 percent per annum, using a loan secured by Marlow's inventory of salad oil. A field-warehouse agreement would be used, which would cost Marlow $2 comma 200 a month. Which source of credit should Marlow select? Explain. Note: Assume a 30-day month and 360-day year.