Lothbrok Industries is evaluating the following three independent shortterm financing arrangements. What is the effective annual cost (%) for each financing alternative?

(a) A 30 day loan secured against receivables from First Financial Co. with the following terms: (4 marks)

Receivables value based on the 2019 balance sheet.

The financing company will lend up to 57.1% of the receivables value

0.25% processing fee (every 30 days) based on the total receivables value Loan rate is 5% annually.

You may use the formulas or use a financial calculator. Show all your calculator keystrokes.

Total loan value =

Interest cost for 30 days =

Total borrowing cost =

Effective annual cost (%) =

(b) A 90 day inventory loan from Commercial Bank of Ontario with the following terms: (3 marks)

Inventory value based on the 2020 balance sheet

Loan will be 10% of collateral value

Prime rate is 3% annually

Field warehouse loan fee of $180 per day

Loan rate is 2% over prime