Compute the effective cost for alternative

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Problem: Amyra enterprise is a food manufacturing company. The company requires a short term funding amounting to $300000 in 180 days for their business expansion. The following alternatives need to be considered before the company can make any decision

(i) MAF bank offers a corporate loan with a discount rate od 6.5 percent per annum. It requires 8 percent compensating balance. The company has a current account balance of $20000 in the bank

(ii) A revolving line of credit of $500000 with 2 percent commitment fee on unused fund and also 9 percent interest rate

(iii) Issuance of commercial papers with a face value $25000 each at 7.5 percent per annum. The issuance cost $2000 per paper

Compute the effective cost for each alternative. Identify the best alternative and state the reason

Reference no: EM132423102

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