Gorman Supply Company needs to increase its working capital by 4.4 million. The following three financing alternatives are available (assume a 365-day year).

a. Forego cash discounts granted on a basis of 3/10, n/30 and pay on the final due date;

b. Borrow 5 million from a bank at 15 percent interest. This alternative would require maintaining a 12 percent compensating balance;

c. Issue 4.7 million of six-month commercial paper to net 4.4 million. Assume that new paper would be issued every six months. (Note: Commercial paper has no stipulated interest rate. It is sold at a discount, and the amount of then discount determines the interest cost to the issuer).

Assuming that the firm would prefer the flexibility of bank financing, provided the additional cost of this flexibility was no more than 2 percent per annum, which alternative should Paparoti select?