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Question
The Lasser Company needs to finance an increase in its working capital for the coming year. Lasser is reviewing the following three options: (1) The firm can borrow from its bank on a simple interest basis for one year at 13 percent. (2) It can borrow on a 3-month, but renewable, loan at a 12 percent simple rate. The loan is a simple interest loan, completely paid off at the end of each quarter, then renewed for another quarter. (3) The firm can increase its accounts payable by not taking discounts. Lasser buys on credit terms of 1/30, net 60 days. What is the effective annual cost (not the approximate cost) of the least expensive type of credit, assuming 360 days per year?
a. 13.0%
b. 12.82%
c. 11.46%
d. 12.12%
e. 12.55%
Answer
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