1. Sara, treasurer for SAFECO Instruments, Inc., updated her firm's short-term cash forecast only to discover that the firm will suffer a cash shortage of $15 million for a period of 30 days. One alternative is to liquidate a portion of her marketable securities portfolio, but with interest rates up, this is not a good alternative. She just learned from one of her commercial paper dealers that paper in the 30-day range is in demand by investors and that the asked discount rates are comparably good at about 3.7%. The dealer's annual fee is 10 basis points, and the annual commitment fee on a back-up line of credit is 25 basis points. a. Estimate the effective cost of the commercial paper assuming this is the only commercial paper issue she would make during the year. b. Estimate the effective cost of the commercial paper assuming that there will be recurring issues of commercial paper all year long 2. As treasurer of your firm, you wish to establish a credit line facility to cover an expected average annual borrowing of $65 million. You have asked two banks to submit proposals for a credit line of $80 million. Based on the credit line of $55 million, Bank of the West proposes a nominal rate of 6%, a commitment fee of .25% on the unused portion of the credit line, and a 20% compensating balance on the amount borrowed. Bank of the East offers a rate of 5.75% if the size of the credit line is $95 million. In addition, the commitment fee on the unused portion of the credit line is 20 basis points, and compensating balances of 25% will be required on the amount borrowed. Calculate the effective cost of both proposals, and indicate which proposal should be accepted