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4 a) Your company plans to borrow a one-year, RM150,000 working capital loan and are presented with two alternatives: i) A discounted loan at 12.5 percent ii) A 10 percent loan requiring a 12 percent compensating balance. Which alternative would you recommend to the company? (8 marks) b) Referring to (a), will your company change the decision if: i) A discounted loan at (8) percent. ii) A 10 percent loan requiring 6 percent compositing balance. Explain your reason. (8 marks) c) Differentiate the terms 'commitment fee' and 'effective interest rate'. (4 marks) 5.QAE Ltd needs to borrow RM150,000 for 6 months. The bank offers the company a choice of the following 3 alternatives of loans. i. Issue commercial paper at 9% interest with issue fee of RM12,000 ii. A discounted loan at a stated interest rate of 6.5% and a 20% compensating balance. Currently QAE has a current account balance of RM50,000 with the bank. iii. A revolving line of credit of RM250,000 with 1% commitment on the unused funds, and a 7% stated interest rate. Which alternative should QAE Ltd choose. Why? 6. Secured Short term Financing Trade credit : 4/10, net 30 , find the effective cost of trade credit 4 a) Your company plans to borrow a one-year, RM150,000 working capital loan and are presented with two alternatives: i) A discounted loan at 12.5 percent ii) A 10 percent loan requiring a 12 percent compensating balance. Which alternative would you recommend to the company? (8 marks) b) Referring to (a), will your company change the decision if: i) A discounted loan at (8) percent. ii) A 10 percent loan requiring 6 percent compositing balance. Explain your reason. (8 marks) c) Differentiate the terms 'commitment fee' and 'effective interest rate'. (4 marks) 5.QAE Ltd needs to borrow RM150,000 for 6 months. The bank offers the company a choice of the following 3 alternatives of loans. i. Issue commercial paper at 9% interest with issue fee of RM12,000 ii. A discounted loan at a stated interest rate of 6.5% and a 20% compensating balance. Currently QAE has a current account balance of RM50,000 with the bank. iii. A revolving line of credit of RM250,000 with 1% commitment on the unused funds, and a 7% stated interest rate. Which alternative should QAE Ltd choose. Why? 6. Secured Short term Financing Trade credit : 4/10, net 30 , find the effective cost of trade credit

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