4. Cost of a bank loan The Effective Annual Rate (EAR) captures the total cost of...

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4. Cost of a bank loan The Effective Annual Rate (EAR) captures the total cost of borrowing, Including both interest costs and other fees associated with short-term borrowing. You are the Vice President of Finance for Hoosier Seeds, and one of your duties is to negotiate terms for borrowing under your company's $3 million credit line. You need to borrow $1 million for one year to finance the receivables and inventory related to a new product line. (Note: You will need the full use of the $1 million, so any fees, interest, or balances will be in addition to the $1 million.) Calculate the EAR for each alternative offered by your bank. Option A: 7.50% annual rate on a simple interest basis. There are no compensating balances and the interest is payable quarterly. Option B: 7.50% discount interest. The face amount of the loan is repaid at the end of the year, Option C: 7.25% discount interest, with compensating balances of $20,000 in a non-interest bearing account. The face amount of the loan is repaid at the end of the year, and the compensating balances are returned. The EAR of option A is The EAR of option B is The EAR of option C is The best alternative for Hoosier Seeds is 4. Cost of a bank loan The Effective Annual Rate (EAR) captures the total cost of borrowing, Including both interest costs and other fees associated with short-term borrowing. You are the Vice President of Finance for Hoosier Seeds, and one of your duties is to negotiate terms for borrowing under your company's $3 million credit line. You need to borrow $1 million for one year to finance the receivables and inventory related to a new product line. (Note: You will need the full use of the $1 million, so any fees, interest, or balances will be in addition to the $1 million.) Calculate the EAR for each alternative offered by your bank. Option A: 7.50% annual rate on a simple interest basis. There are no compensating balances and the interest is payable quarterly. Option B: 7.50% discount interest. The face amount of the loan is repaid at the end of the year, Option C: 7.25% discount interest, with compensating balances of $20,000 in a non-interest bearing account. The face amount of the loan is repaid at the end of the year, and the compensating balances are returned. The EAR of option A is The EAR of option B is The EAR of option C is The best alternative for Hoosier Seeds is