Matt's Machine Company Has Borrowed $10 Million for Four Months

question 30

Multiple Choice

Matt's Machine Company has borrowed $10 million for four months at 5.5% APR,using inventory stored in a field warehouse as collateral.The warehouse fee is 0.5%,payable at the end of the loan.What is Matt's EAR?

• A)5.5%
• B)7.20%
• C)0.58%
• D)7.01%
• E)3.46%

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Definitions:

Pipeline Inventory

Inventory that is currently in transit between locations or stages in a supply chain. It represents goods that are not yet available for sale or use.

Periodic Review System

A system of inventory control where the inventory levels are reviewed at fixed intervals to determine the reorder quantity.

Order Up To Level

A replenishment strategy where inventory is restocked to a predetermined level each time an order is placed to maintain stock availability.

Lot Size

The quantity of inventory items that a company orders or produces in a single production run or order, affecting inventory costs and management strategies.