Jenkins Appliances has cash flow problems and needs to borrow between $ 50,000 a

Question

Jenkins Appliances has cash flow problems and needs to borrow between $ 50,000 and $60,000 for approximately sixty days. Because the business is small and relatively new, unsecured loans are very hard to get and are expensive when they are available. The bank has offered such a loan at 25%. Climax will lend finance company, has offered an alternative loan if receivables are pledged as collateral. Climax will lend 70% of the average receivable balance for 14% plus an administrative fee of $1,200. Jenkins average receivable balance is $80,000. Which alternative should Jenkins choose? Calculate using a 360 day year. Assume the bank is willing to lend the same amount as climax.

Explanation / Answer

9040 incase of climax and between 12,500 and 15000 in case of bank
hence he should borrow from climax

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