Al Fateh Inc., has a seasonal pattern to its business. It borrows under a line of credit from Central Bank at 1% over prime. Its total asset requirements now (at year end) and estimated requirements for the coming year are (in millions):

	Now	1st Qtr	2nd Qtr	3rd Qtr	4th Qtr
Total Asset Requirement	6.5	6.8	7.5	7.9	8

Assume that these requirements are level throughout the quarter. At present the company has $4.5 million in equity capital plus long-term debt plus the permanent component of current liabilities, and this amount will remain constant throughout the year. The prime rate currently is 15%, and the company expects no change in this rate for the next year. Mendez Metal Specialties is also considering issuing intermediate-term debt at an interest rate of 18.5 percent. In this regard, three alternative amounts are under consideration: zero, $1.5million, and $1.8 million. All additional funds requirements will be borrowed under the companys bank line of credit.

Required: Determine the total dollar borrowing costs for short- and intermediate-term debt under each of the three alternatives for the coming year. (Assume that there are no changes in current liabilities other than borrowings.) Which alternative is lowest in cost?