They approach their bank for working capital funding and are given the same two options that are presented in Study Problem 18–7.

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 If we assume that their cashflow forecast is accurate and they have a guarantee of payment from their customer, which is the best working capital funding option?

(Remember the UK 365-day calculation basis.)