Analyze the cost of each of the alternatives

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The treasurer of lights a lot manufacturing company is faced with the 3 alternative bank loans. the firm wishes to select one that minimizes the cost of credit on a $200,000 note that it plans to issue in the next 10 days.

Relevant information for the 3 loan configurations includes:

a. an 18% rate of interest with interest paid at year-end and noi compensating balance requirement
b. an 16% rate of interest but carrying a 20% compensating balance requirement this loan also calls for interest to be paid at year-end
c. an 14% rate of interest that is discounted plus a 20% compensating balance requirement

Problem 1: Analyze the cost of each of this alternatives. you may assume the firm would not normally maintain any bank balance that might be used to meet the 20% compensating balance requirements of alternatives b and c.

Reference no: EM132754197

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