Question
Additional financing required $ 520,000 Interest rate on line of credit 8.0% Fee charged $ 7,500 Discount rate on commercial paper 1.0% Interest rate on
Additional financing required $ 520,000 Interest rate on line of credit 8.0% Fee charged $ 7,500 Discount rate on commercial paper 1.0% Interest rate on loan 6.50% Compensating balance required $ 27,000 Required Which alternative should be selected?
a) Establish a line of credit with the bank. The bank will charge a fee to establish the line of credit.
b) Forgo trade discounts from suppliers on terms of 2/10, net 100.
c) Issue commercial paper for 90 days.
d) Obtain a loan from the bank. Instead of charging a fee to establish the credit, the bank requires a compensating balance. Macco Bakers currently has no idle cash to apply against this compensating balance. Macco Bakers requires additional financing for a 90-day period. Four alternatives are being considered.
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