Which alternative is the cheapest source of financing

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Reference no: EM131905541

The Clare M. & JAcob B. Company needs a 10,000 loan for the next 30 days. it is trying to decide which of the tree alternatives to use:

Alternative A: Forgo the discount on its trade credit agreement that offers terms 3/10, net 30.

Alternative B: borrow the money from Bank K. Smi., which has offered to lend the firm $10,000 for 30 days at an APR of 20%. The loan has a 2% loan origination fee.

Alternative C: borrow the money from Rawan M. Bank which has offered to lend the firm $10,000 for 30 days at an APR of 12%. The R.M bank will require a (no-interest) compensating balance of 25% of the face value of the loan and will charge a $200 loan origination fee, which means the Clare & Jacob must borrow even more than $10,000.

Which alternative is the cheapest source of financing for Clare & Jacob? (show your calculations)

Reference no: EM131905541

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