The Brandt Company has been approached by two different commercial paper dealers offering to sell an issue of commercial paper for the company Dealer A offered to market an $8 million issue maturing in 90 days at an interest cost of 8 5 percent per annum (deducted in advance) The fee to Dealer A wo...

Annual financing cost Interest costs FeesUsable funds x 365number of days x 100 ...

The Brandt Company has been approached by two different commercial paper dealers offering to sell an issue

Question:

The Brandt Company has been approached by two different commercial paper dealers offering to sell an issue of commercial paper for the company. A offered to market an $8 million issue maturing in 90 days at an interest cost of 8.5 percent per annum (deducted in advance). The fee to A would be $12,000. B has offered to sell a $10 million issue maturing in 120 days at an interest rate of 8.75 percent per annum (deducted in advance). The fee to B would be $15,000. Assuming that Brandt wishes to minimize the annual financing cost of issuing commercial paper, which should it choose?

Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...