Solve this problem Alpha corporation needs a $20,000 loan for the next 30 days. It's tryingto decide which of the three alternatives to use:A) Forgo the discount on its trade credit agreement that offers terms of2/10, Net 30.B) Borrow money from bank A, which offered to lend the firm $20,000 for30 days with APR of 12%. The bank will require a (no-interest)compensating balance of 5% of the face value of the loan and will chargea $100 loan origination fee, which means Alpha corporation must borroweven more than the $10,000C) Borrow money from bank B, which has offered to lend thefirm $10,000 for 30 days at an APR of 15%. The loan has a 1% originationfee.Which of the alternative is the cheapest source of financing for the Alphacorporation.

Option A:This option is incorrect because forgoing the trade credit discount results in an implied…

Answered: Alpha corporation needs a $20,000 loan…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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