university of southern california Operations And Supply Chain Management Assignment Help - Raymond Manufacturing

Question - Raymond Manufacturing faces a liquidity crisis—it needs a loan of $100,000 for 1 month. Having no
source of additional unsecured borrowing, the firm must find a secured short-term lender. The firm’s
accounts receivable are quite low, but its inventory is considered liquid and reasonably good
collateral. The book value of the inventory is $300,000, of which $120,000 is finished goods. (Note:
Assume a 365-day year.)
(1) City-Wide Bank will make a $100,000 trust receipt loan against the finished goods inventory. The
annual interest rate on the loan is 12% on the outstanding loan balance plus a 0.25% administration
fee levied against the $100,000 initial loan amount. Because it will be liquidated as inventory is sold,
the ...Read More average amount owed over the month is expected to be $75,000.
(2) Sun State Bank will lend $100,000 against a floating lien on the book value of inventory for the 1-
month period at an annual interest rate of 13%.
(3) Citizens’ Bank and Trust will lend $100,000 against a warehouse receipt on the finished goods
inventory and charge 15% annual interest on the outstanding loan balance. A 0.5% warehousing fee
will be levied against the average amount borrowed. Because the loan will be liquidated as inventory
is sold, the average loan balance is expected to be $60,000.
a. Calculate the dollar cost of each of the proposed plans for obtaining an initial loan amount of
$100,000.
b. W hich plan do you recommend? Why?
c. If the firm had made a purchase of $100,000 for which it had been given terms of 2/10 net 30,
would it increase the firm’s profitability to give up the discount and not borrow as recommended in
part b? W hy or why not? ...Read Less

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