QUESTION $2$ L$5$

XYZ Corporation expects that it will need $$1,000,000$ cash for $90$ days. The followings are

possible means of financing available to the company:

Strategy $1$

XYZ Corporation establish a $1-$year line of credit for $$1,000,000.$ The bank requires a $2\%$

compensating amount. The interest rate is $18\%$ per annum and interest is prepaid. Funds are

needed for $90$ days.

Strategy $2$

XYZ Corporation establish a revolving credit for $$1,200,000$ and only used $$1,000,000$ for $90$

days. The bank requires a $10\%$ compensating amount and $1\mathrm{.}5\%$ commitment fees. The interest

rate is $18\%$ per annum.

Determine which financing strategy of the above should be selected with supporting calculations.