Your startup needs a $10,000 loan for the next 25 days. It is trying to decide which of three alternatives to use:
Alternative A: Forgo the discount on its trade credit agreement that offers terms of 1.5 /10, net 25.
Alternative B: Borrow the money from Bank A, which has offered to lend the firm $10,000 for 25 days at an APR of 10.0%. The bank will require a (no-interest) compensating balance of 5% of the face value of the loan and will charge a $100 loan origination fee, which means your start-up must borrow even more than the $10,000.
Alternative C: Borrow the money from Bank B, which has offered to lend the firm $10,000 for 25 days at an APR of 13%. The loan has a 1% loan origination fee.
For alternative A, the annual rate is......... %. (round to two decimals)
For alternative B, the annual rate is ..........%. (round to two decimals)
For alternative C, the annual rate is %.......... (round to two decimals)
Which alternative is the cheapest source of financing for Hand-to-Mouth?
It is alternative . (fill in "A", "B", or "C" without quotes)
Assume 365 days/year.