The Langley Corporation is in a seasonal business. It requires a permanent base of net working capital of $10 million all year long, but that requirement temporarily increases to $20 million during a four-month period each year. Langley has three financing options for net working capital.

a. Finance the peak level year round with equity, which costs 20%, and invest temporarily unused funds in marketable securities, which earn 6%.

b. Finance permanent net working capital with equity and temporary net working capital with a short-term loan at 12%.

c. Finance all net working capital needs with short-term debt at 12.5%.

Calculate the cost of each option. Which would you choose? Why?