Determine the best financing alternatives

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Reference no: EM132743515

Problem 1: 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 9%, 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 21% and there will be no additional expenses.

Reference no: EM132743515

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