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| Megatech Inc. is a large publicly-held firm. The treasurer is making an analysis of the short-term financing options available for the third quarter, as the company will need an average of $8 million for the month of July, $12 million for August, and $10 million for September. The following options are available. I. Issue commercial paper on July 1 in an amount sufficient to net Megatech $12 million at an effective rate of 7% per year. Any temporarily excess funds will be deposited in Megatech's investment account at First City Bank and earn interest at an annual rate of 4%. II. Utilize a line of credit from First City Bank with interest accruing monthly on the amount utilized at the prime rate, which is estimated to be 8% in July and August and 8.5% in September. Based on this information, which one of the following actions should the treasurer take? A. Use the line of credit, since it is approximately $15,000 less expensive than issuing commercial paper. B. Use the line of credit, since it is approximately $5,800 less expensive than issuing commercial paper. C. Issue commercial paper, since it is approximately $14,200 less expensive than the line of credit. D. Issue commercial paper, since it is approximately $35,000 less expensive than the line of credit. |