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Rockette Dancers requires $0.5 million in financing for a 60-day period. Three alternatives are being considered. a. Establish a line of credit with the bank
Rockette Dancers requires $0.5 million in financing for a 60-day period. Three alternatives are being considered. a. Establish a line of credit with the bank at an interest rate of 11 percent. The bank will require a 10 percent compensating balance. b. Forgo trade discounts from suppliers on terms of 3/10, net 70. c.Issue commercial paper for 60 days at a discount of 2.65 percent a. What would be the rate of interest for bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Rate of Interest for bank loan b. What would be the cost of forgoing the cash discount (Use 365 days in a year. Do nor round intermediate calculations. Round the final answer to 2 decimal places.) Cost of forgoing the cash discount c. What would be the price of commercial paper? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) % Price d. Which alternative should be selected? Bank loan Cost of forgoing discount Commerical paper
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