Hello!

"BoGo Textbooks is evaluating two options for funding its working capital during the next year. Option 1 is borrowing from the bank using a 180-day discount interest loan, which has a quoted interest rate equal to 8 percent and requires a 20 percent compensating balance. BoGo normally maintains an average checking account balance of $10,000. Option 2 is to issue 180-day commercial paper, which has an annual interest equal to 9 percent and requires BoGo to pay a transaction fee equal to 0.3 percent.

(a) If BoGo actually needs $200,000 to finance working capital during the next year, how much must BoGo borrow with each option so that $200,000 can be used to pay the bills?

(b) Which option is better?"

Thank you!