Maceo Bakers requires $500,000 in financing for a 90-day period. Three alternatives are being considered. Which alternative

Question:

Maceo Bakers requires $500,000 in financing for a 90-day period. Three alternatives are being considered. Which alternative should be selected?
a. Establish a line of credit with the bank at an interest rate of 8 percent. The bank will charge a fee of $5,000 to establish the line of credit.
b. Forgo trade discounts from suppliers on terms of 2/10, net 100.
c. Issue commercial paper for 90 days at a discount of 2.05 percent.

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...

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