As the newly appointed treasurer for Collingwood Corp you have
As the newly appointed treasurer for Collingwood Corp., you have to decide how to raise $50 million in short-term financing. You believe you could issue commercial paper with a promised yield of 9 percent. However, your bank will charge a commitment fee of 0.125 percent on the line of credit to back up this paper, as well as 0.125 percent as a selling commission. As an alternative, the bank suggests using bankers’ acceptances that would have a lower yield of 8.75 percent. The bank’s “stamping” fee for these BAs is 0.325 percent. Which financing alternative should you choose?

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