In December of each year the Arlyle Publishing Company starts to build it inventories for the next years sales. The company has explored the possibility of field warehouse security agreement as collateral for an inventory loan from its bank during the three summer months.

During these months inventories average $400,000.

The field warehouse arrangement will cost Arlyle a flat fee of $2,000 a month on all its inventory regardless of the amount of the firm borrows. The bank has agreed to lend up to 70% of the value of the inventory at a rate of 14%.

REQUIRED: What is the annual cost of credit (RATE) if Arlyle borrows $200,000 using the inventory loan for December to February?

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