What option should management pick

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Reference no: EM132778677

Question - Frick & Frack Manufacturing is expanding its facilities and requires a bank loan of $3,000,000 for one year. The banker has offered a stated rate of 8% interest and has offered the company four different options, and management must decide what would be most suitable.

TASK: Compare each alternative by calculating the annual rate of interest for each.

Option 1: A simple 8% interest with a 8% compensating balance.

Option 2: Discounted interest.

Option 3: A 12-month installment loan

Option 4: Discounted interest with a 1% administration fee.

What option should management pick?

Reference no: EM132778677

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