Sunny Coast Enterprises $($B$).$ Sunny Coast Enterprises has sold a combination of films and DVDs to Hong Kong Media Incorporated

for US $$100,000,$ with payment due in six months. Sunny Coast Enterprises has the following alternatives for financing this receivable: $1)$

Use its bank credit line. Interest would be at the prime rate of $5\mathrm{.}2\%$ plus $150$ basis points per annum. $2)$ Use its bank credit line but

purchase export credit insurance for a $1\%$ fee. Because of the reduced risk, the bank interest rate would be reduced to $5\mathrm{.}2\%$ per annum

without any points. In both cases Sunny Coast would need to maintain a compensating balance of $22\%$ of the loan's face amount, and

no interest will be paid on the compensating balance by the bank. $3)$ Sunny Coast Enterprises has been approached by a factor that

offers to purchase the Hong Kong Media Imports receivable at a $16\mathrm{.}3\%$ per annum discount plus a $2\%$ charge for a non$-$recourse

clause.

a$.$ What are the annualized percentage all$-$in costs of each alternative?

b$.$ What are the advantages and disadvantages of the factoring alternative compared to the alternatives $1$ and $2.$

$($NOTE: Assume a $360-$day year.$)$