Bernies Macs requires $600,000 in financing for a 60-day period. Three alternatives are being considered.

a. Establish a line of credit with the bank at an interest rate of 7 percent. The bank will require an annual commitment fee of $4,750 to establish the line of credit.

b. Forgo trade discounts from suppliers on terms of 2/30, net 90.

c. Issue commercial paper for 60 days at a discount of 1.91 percent.

a. What would be the rate of interest for bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Rate of Interest for bank loan %

b. What would be the cost of forgoing the cash discount? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of forgoing the cash discount %

c. What would be the price of commercial paper? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Discounted commercial paper %

d. Which alternative should be selected?

multiple choice

• Bank loan

• Cost of forgoing discount

• Commerical paper