Sally Smith is the manager of the Office Store in Tampa. The company attempts to gain an advantage over its competitors by providing quality customer service, which includes prompt delivery of orders by truck or van and always being able to meet customer demand from its stock. In order to achieve this degree of customer service, it must stock a large volume of items on a daily basis at a central warehouse and at three retail stores in the city and suburbs. Sally maintains these inventory levels by borrowing cash on a daily basis from the First Citizen Bank. She estimates that for the coming fiscal year the company's demand for cash to pay for inventory will be $17,000 per day for 305 working days. Any money she borrows during the year must be repaid with interest by the end of the year. The annual interest rate currently charged by the bank is 9%. Any time Sally takes out a loan to purchase inventory, the bank charges the company a loan origination fee of $1200. Sally often uses EOQ analysis to determine optimal amounts of inventory to order for different office supplies. Now she is wondering if she can use the same type of analysis to determine an optimal borrowing policy.

1. Determine the optimal amount of the loan Sally should borrow from the bank.

2. The bank also charges 2.25% oth the annual total amount borrowed. Determine the total annual cost of the company's borrowing policy if the optimal amount of the loan was borrowed from the bank.

3. Suppose the bank offers Sally a discount as follows. On any loan amount equal to or greater than $500,000, the bank will lower the number of points charged on the loan origination fee from 2.25% to 2.00%. What would be the company's optimal amount borrowed?