Gold Appliances purchases $20.0 million of inventory from its suppliers every year. They are looking to finance $1,760,000 for 60 days, to cover the purchase of inventory for the Christmas season. (They need $1,760,000 for 60 days.) Three alternatives are being considered:

1. Increase accounts payable: Supplier's terms are 1/10 net 40 and Gold Appliances has traditionally taken advantage of the discount, paying their suppliers in 10 days. If Gold Appliances chooses to forego the discount, they would pay their suppliers in 40 days, instead of 10.
2. Midland Bank will let Gold Appliances borrow money, but they require a compensating balance of 10.0 percent of the loan balance be maintained by Gold Appliances at all times. (There are currently no funds on deposit with Midland Bank that would count toward compensating balances.) They will charge 12.00 percent interest per annum for the loan. (Remember: calculate interest for just 60 days, not a full year.)
3. Issue commercial paper for 60 days, sold at a discounted price of 98.800 percent of the maturity value.

Required:

(Round all dollar figures to zero (0) decimal places (e.g. $123,456) and all percentages to two (2) decimal places (e.g. 12.34%).

1. If Gold Appliances pays their suppliers in 40 days:
   1. Assuming annual purchases of inventory remain at $20.0 million, what will be the increase in accounts payable?

   New Accounts Payable	$
   Old Accounts Payable
   Difference in Accounts Payable	$

   2. What is the annual interest rate associated with foregoing the discount? %

2. If Gold Appliances decides to use a loan from Midland Bank:

   How much would they have to borrow?	$
   How much would they pay, in dollars, in interest?
   How much would they be able to use?
   What is the annual rate of interest?	%

3. What is the annual interest rate associated with the Commercial Paper? %

4. Which alternative should Gold Appliances choose? (Click to select) Commercial Paper Suppliers Midland Bank