(Cost of securedshort-term credit) The Marlow Sales and Distribution Co. needs $460 comma 000

460,000 for the3-month period ending September30, 2018. The firm has explored two possible sources of credit.

a. Marlow has arranged with its bank for a $460 comma 000

460,000 loan secured by its accounts receivable. The bank has agreed to advance Marlow 80

80 percent of the value of its pledged receivables at a rate of 10

10 percent plus a 1

1 percent fee based on all receivables pledged.Marlow's receivables average a total of$1 millionyear-round.

b. An insurance company has agreed to lend the $460 comma 000

460,000 at a rate of 8

8 percent perannum, using a loan secured byMarlow's inventory of salad oil. Afield-warehouse agreement would beused, which would cost Marlow $2 comma 200

2,200 a month.

Which source of credit should Marlowselect? Explain. Note: Assume a30-day month and360-day year.

Thecost, or APR, of the pledging accounts receivable is

nothing

%. (Round to two decimalplaces.)

Thecost, or APR, of the loan secured by inventory is

nothing

%. (Round to two decimalplaces.)

Marlow should select the

inventory or receivable

loan, since its cost is lower under the conditions presented.