(Cost of commercial paper)

Tri-State Enterprises plans to issue commercial paper for the first time in the firm's 35-year history. The firm plans to issue

$550,000

in

270-day

maturity notes. The paper will carry a

10.75

percent rate with discounted interest and will cost Tri-State

$10,000

(paid in advance) to issue.

Note:

Assume a 30-day month and 360-day year.

a. What is the effective cost of credit to Tri-State?

b. What other factors should the company consider in analyzing whether to issue the commercial paper?