Tri-State Enterprises plans to issue commercial paper for the first time in the firm's 35-year history. The firm plans to issue $500,000 in 180-day maturity notes. The paper will carry a 9.75 percent rate with discounted interest and will cost Tri-State $12,000 (paid in advance) to issue.

Note: Assume a 30-day month and 360-day year.

a. What is the effective cost of credit to Tri-State?

b. What other factors should the company consider in analyzing whether to issue the commercial paper?