October 2003: Section B Question 3(a, b) b) DD Sdn. Bhd. requires RM400,000 to support the working capital requirements for 3 months. Calculates the effective cost of the following alternatives. III. Borrow from Bank A and pay an annual interest rate of 7.5% on a discounted basis. The bank requires a 12% compensating balance. DD maintains a demand deposit of RM40,000 in the bank. DD has a revolving credit agreement with Bank B for the total amount of RM450,000. Interest rate of 8% is charged on the used loan. A commitment fee of 5% is charged on the unused loan. On top of that, the bank requires that DD maintain a checking account of RM20,000. Issue commercial paper on a discount basis at an interest rate of 10% per annum. Dealer placement fee is RM2,000 per paper and the par value of these commercial papers is RM50,000 each. Foregoing a trade credit with favorable term of 5/15 net 50. Which alternative is the best? Why? 16 marks