What annual percentage cost for each financing alternative

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Problem 1: Elm Tech. Ltd. is evaluating the following two independent short-term financing arrangements. What is the annual percentage cost for each financing alternative?

a. A 30-day loan secured against inventory from First Financial Co. with the following terms:

Inventory value equals $29 million
The financing company will lend up to 50% of the inventory value.
0.20% processing fee (every 30 days) based on the total inventory value
Loan rate is 6% annually.
Calculate the effective annual interest rate.

b. Delay payments we make to our suppliers:

We currently have terms of 1/10 net 35 days and pay on the 10th day.
We now will pay on the 35th day
Calculate the effective annual interest rate.

Reference no: EM132719982

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