Response to the following problem:
A firm is considering using a field warehousing arrangement as part of its short-term financing. The field warehouse requires a once-ayear payment of $10,000, paid at the beginning of the year, no matter how much the firm borrows. Interest on the loan is a single payment of 10% per year, paid at the end of the year.
What is the effective annual cost of borrowing using field warehousing if the amount borrowed is:
a. $150,000?
b. $200,000?
c. $300,000?
d. $500,000?