Estimate the effective cost of the commercial paper

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Reference no: EM13519163

Ralph, treasurer for M & M Products, Inc., recently updated his form's short-term cash forecash only to discover that the firm will suffer a cash shortage of $15 million for a period of 30 days. One alternative is to liquidate a portion of his marketable securities portfolio,but with interest rates up, this is not a good alternative. Ralph just learned from one of his commercial paper dealers that paper in the 30-day range is in demand and that asked discount rates are comparably good at about 3.7%. The dealer's annual fee is 10 basis points and the annual commitment fee on a back-up line of credit is 25 basis points.
a. Estimate the effective cost of the commercial paper assuming that this is the only commercial paper issue planned for the year

Reference no: EM13519163

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