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Homework answers / question archive / QUESTION 2 Rimba Bayu Berhad requires RM900,000 for its working capital needs

QUESTION 2 Rimba Bayu Berhad requires RM900,000 for its working capital needs

Finance

QUESTION 2 Rimba Bayu Berhad requires RM900,000 for its working capital needs. The firm is evaluating the following alternatives: Option 1 Borrow from Aniq Bank a 12-month simple interest loan at 8 percent per annum which, requires a compensating balance of 10 percent. Option 2 The fim issue a 270-day commercial paper at 8.5 percent interest per annum and face value of RM60,000 per paper. The issuance cost is RM180 for each paper. Option 3 Granite Bank offered a revolving credit facility with credit limit of RM1.1 million. The bank charges 8 percent interest for 12 months and the commitment fee is 3 percent of the unused portion payable on advance. Currently the firm has RM30,000 in its current account. However, the bank requires a compensating balance of RM60,000. Decide the best alternative short-term financing based the annual Effective Interest Rate (EIR). 

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