Question $3$: The PDM Company Ltd needs to increase its working capital by Tsh $440$ million. The following three financing alternatives are available $($assume a $365-$day year$)$

i$)$ Take cash discounts $($granted on a basis of $3/10,$ net $30)$ and pay on the final due date.

ii$)$ Borrow Tsh $500$ million from a bank at $15$ percent interest. This alternative would necessitate maintaining a $12$ percent compensating balance.

iii$)$ Issue Tsh $470$ millions of six$-$month commercial paper to net Tsh $440$ million. Assume that the new paper would be issued every six months. $($Note: commercial paper discount determines the interest cost of the issuer$).$

Required:

Assuming the firm would prefer flexibility of bank financing provided the additional cost of this flexibility was no more than $2$ percent per annum, which alternative should PDM Company Ltd select? Why?