Inventory financing Raymond Manufacturing faces a liquidity crisis: It needs a loan of $1,000,000 for one month. Having no source of additional unsecured borrow-ing, the firm must find a secured source of short-term lending. The firms accounts receivable are quite low, but its inventory is considered liquid and reasonably good collateral. The book value of Raymonds inventory is $3,000,000, of which $1,200,000 is finished goods. (Note: Assume a 365-day year.)

(1) City-Wide Bank will make a $1,000,000 trust receipt loan against the inventory of finished goods. The annual interest rate on the loan is 14% on the outstanding loan balance plus a 0.35% administration fee levied against the $1,000,000 ini-tial loan amount. Because the loan will be repaid as inventory is sold, the average loan amount owed over the month is expected to be $750,000.

(2) Sun State Bank will lend $1,000,000 against a floating lien on the book value of inventory for the 1-month period at an annual interest rate of 15%.

(3) Citizens Bank and Trust will lend $1,000,000 against a warehouse receipt on the finished goods inventory and charge 17% annual interest on the outstanding