Reference no: EM131864341

The Hand-to-Mouth Company needs a $10,000 loan for the next 30 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 2/10, net 30. Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 30 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 Hand-to-Mouth 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 30 days at an APR of 15%. The loan has a 1% loan origination fee. Which alternative is the cheapest source of financing for Hand-to-Mouth? Principal $10,000 Term of loan 30 Alternative A: Forego trade discount Credit Terms 2.00% 10 net 30 Additional days Interest rate per period Annual rate Alternative B: Borrow from Bank A APR 12.00% Compensating balance 5.00% Fee $100.00 Total borrowed Interest paid Interest & fee paid Periodic rate Annual rate Alternative C: Borrow from Bank B APR 15.00% Compensating balance 0.00% Origination fee 1.00% Fee Total borrowed Interest paid Interest & fee paid Periodic rate Annual rate Cheapest loan cost This is: