Camphor Sdn. Bhd. needs an additional fund of RM1,200,000.00 to finance its short-term project. The project will take eight (8) months to be completed. The firm has several alternatives to choose from

REQUIRED: Compute the effective cost for each of the following alternatives:

Alternative 1 A loan from Mega Bank at a discounted interest rate of 8 percent per annum and 15 percent compensating balance. The present account balance of the company is RM150,000.00.

Alternative 2 Issue a commercial paper with a face value of RM100,000.00 each at 9 percent per annum. The issuing cost is RM1,500.00 per paper.

Alternative 3 Forego trade credit with the following credit terms of 3/15 net 50.

Alternative 4 A revolving credit facility of RM1,500,000.00 from MMG Bank. The bank charges a 10 percent annual interest rate on the used amount, 3 percent commitment fee on the unused portion. The bank also requires a 10 percent compensating balance.

Choose the best alternative and provide reasons for your answer.