Macco Bakers requires additional financing for a 90-day period. Four alternatives are being considered.

Additional financing required $ 580,000

a) Establish a line of credit with the bank. The bank will charge a fee to establish the line of credit.

interest rate on line of credit 8%

fee charged $ 8,000

b) Forgo trade discounts from suppliers on terms of 2/10, net 100.

c) Issue commercial paper for 90 days.

Discount rate on commercial paper 2.0%

d) Obtain a loan from the bank. Instead of charging a fee to establish the credit, the bank requires a compensating balance. Macco Bakers currently has no idle cash to apply against this compensating balance.

interest rate on loan 7%

compensating balance required $23,000

Required: Which alternative should be selected?