and-to-Mouth (H2M) is currently cash-constrained and must make a decision about whether to delay paying one of its suppliers or take out a loan. It owes the supplier

$12,500

with terms of

1.6/10

Net 40, so the supplier will give it a

1.6%

discount if it pays by today (when the discount period expires). Alternatively, it can pay the full

$12,500

in one month when the invoice is due. H2M is considering three options.

Alternative A: Forgo the discount on its trade credit agreement, wait, and pay the full

$12,500

in one month.

Alternative B: Borrow the money needed to pay its supplier today from Bank A, which has offered a one-month loan at an APR of

11.7%

with monthly compounding. The bank will require a (no-interest) compensating balance of

5.3%

of the face value of the loan and will charge a

$105

loan origination fee. Because H2M has no cash, it will need to borrow the funds to cover these additional amounts as well.

Alternative C: Borrow the money needed to pay its supplier today from Bank B, which has offered a one-month loan at an APR of

15.1%

with monthly compounding. The loan has a

0.9%

loan origination fee, which, again, H2M will need to borrow to cover.

Which alternative is the cheapest source of financing for Hand-to-Mouth?