(Calculating the cost of trade credit) (Related to Checkpoint 18.2 on page 621) You have an estimated working capital requirement for the next 180 days that varies between

£90,000 and £150,000. You are looking at short-term working capital finance for a period of 180 days, and you have been offered the following alternatives by your bank. (Remember the UK 365-day calculation basis.)

a. A short-term loan for £150,000, repayable in 180 days based on an annual interest rate of 7.5 percent

b. An overdraft limit of £200,000 for a 12-month period at a rate of 7 percent but with an up-front fee of £1,000 Suggest which option you would choose assuming you want to minimize your cost of finance.