Question
Khana Khazana Restaurant needs $150,000 over the next 180 days to finance an import. The company has $300,000 worth of inventories. Determine the best financing
Khana Khazana Restaurant needs $150,000 over the next 180 days to finance an import. The company has $300,000 worth of inventories. Determine the best financing alternatives from the following two options. a. The Punjab State Bank will lend against the finished goods (valued at $200,000) provided that they are placed in a public warehouse under its control. The interest rate will be 10%, and the company will pay quarterly warehousing costs of $2,500. As the company will experience a reduction in efficiency as a result of this arrangement, there will be a reduction in the quarterly before-tax profit. The company currently has a quarterly before-tax profit of $30,000. Under the new arrangement it will come down to $27,000. b. Kotak & Mahendra Bank will lend the money under a floating lien on all of its inventories. The rate will be 23% and there will be no additional expenses.
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