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Albert Company borrows under a line of credit from first bank of river city at 2 percent over prime. Its total assets requirements now and
Albert Company borrows under a line of credit from first bank of river city at 2 percent over prime. Its total assets requirements now and estimated requirements for the coming six months as given below: Now 15 Month 2nd Month 3rd Month 4th Month 5th Month 6th Month 20,000 $ 28,000 35,000 45,000 31,000 Total Assets Requirements 50,000 27,000 At present, the company has 22,000 in equity capital plus long-term debt plus the permanent components of current liabilities, and this will remain constant throughout the year. The prime rate current is 10 percent. The company is also considering issuing intermediate-term debt at an interest rate of 15 percent. In this regard, five alternative amounts are under considerations: 2500, 5000, 7500, 10,000 and 12,500. All additional funds requirements will be borrowed under the company's bank line of credit. Instructions: Determine the total dollar borrowing costs for short- and intermediate-term debt under each of the five alternatives for the coming year. (Assume that there are no changes in current liabilities other than borrowings.) Which alternative is lowest in cost
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