Effective annual cost of the least expensive type of credit

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Reference no: EM13768802

Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable, loan basis at an 11.5% nominal rate; (c) borrow on an instalment loan basis at a 6% add-on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost of the least expensive type of credit?

Reference no: EM13768802

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