4)

a) Perry Sdn Bhd needs to issue commercial paper of RM 200000000 in 180 days maturity period . The paper will carry 13% discounted interest and will cost Perry Sndn Bhd RM 150000( dealer's fee and other cost) to issue. What is the cost of credit to Perry Sdn Bhd?

b) The treasurer of the Yo Manufacturing is faced with 3 alternative bank loans. The firm wishes to select the one that minimizes its cost of credit on a RM 200000 notes that it plans to issue in the next 10 days. Relevant information for the three 1-year loan configuration include:

i) An 18% rate of interest with interest paid at year end and no compensating balance requirement.

ii) A 16% rate of interest but carrying a 20% compensating balance requirement this loan also call for interest to be pay at year end

III} A 14% rate of interest that is discounted, plus a 20% compensating balance requirement.

Analyze the cost of each of this alternative. You can assume the firm would not normally maintain a bank balance that might be use to meet the 20% compensating the balance requirement of alternative (ii) and (iii).