Cheapest source of financing for hand-to-mouth

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Reference no: EM131462127

Your startup needs a $10,000 loan for the next 35 days. It is trying to decide which of three alternatives to use:

Alternative A: Forgo the discount on its trade credit agreement that offers terms of 2.5 /10, net 35.

Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 35 days at an APR of 12%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means your start-up must borrow even more than the $10,000.

Alternative C: Borrow the money from Bank B, which has offered to lend the firm $10,000 for 35 days at an APR of 15%. The loan has a 1% loan origination fee.

For alternative A, the annual rate is:_________

For alternative B, the annual rate is:_________

For alternative C, the annual rate is:_________

Which alternative is the cheapest source of financing for Hand-to-Mouth?

Reference no: EM131462127

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