As the newly appointed treasurer for Collingwood Corp., you have to decide how to raise $50 million

Question:

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 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?

Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...