Rockford Filing Ltd. requires $1 million in financing for a 45-day period. Three alternatives are being considered. (Use 365 days in a year. Do not round intermediate calculations. Round the final answers to 2 decimal places.)

a. Establish a line of credit with the bank at an interest rate of 10 percent. The bank will charge a fee of 1% to establish the line of credit.

b. Forgo trade discounts from suppliers on terms of 2/15, net 60.

c. Issue commercial paper for 45 days at a discount of 1.25 percent.

a. What is the actual percentage cost of the line of credit?

Rate of Interest for bank loan %

b. What would be the cost of forgoing the cash discount?

Cost of forgoing the cash discount %

c. What would be the cost of commercial paper?

Discounted commercial paper %

d. Which alternative should be selected?

multiple choice

• Bank loan

• Cost of forgoing discount

• Commerical paper