Beckheart is seeking financing for its inventory. Safe-proof warehouses offers s

Question

Beckheart is seeking financing for its inventory. Safe-proof warehouses offers space in their facility for beckhearts inventory. They offer loans with a 15 % APR equal to 60% of the inventory. Monthly fees for the usage of the warehouse are $500 plus 0.5 percent of the inventory's value. If beckheart has saleable inventory of $2million.

A. how much money can the firm borrow?
b. what is the interest cost of the loan in dollars over a year?
c. what is the total amount of fees to be paid in a year?
d. what is the effective annual rate of using safe-proof to finance beckheart's inventory?

Explanation / Answer

a) Loan amount = 60% of the inventory = 60%*$2million = 1.2 million b)Interest = 15%*Loan =15%*1.2 million= 0.18 million c)Total fees = $500 + 0.5%*2 million = $10500 d) Total amount paid = interest +fees =10500 +0.18 million =190,500 Effective APR = 190,500/1.2 million = 15.88%

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