Answer (B) is correct . The total cost to the company will be $21,200 ($20,000 discount + $1,200 transaction cost), and the net amount available will be $978,800. The annualized amount of the costs is $84,800 (4*$21,200). Accordingly, the annual interest cost will be 8.66% ($84,800/$978,800).Answer (A) is incorrect because This percentage is calculated without including transaction costs.
Answer (C) is incorrect because This percentage is calculated without including transaction costs as part of the total costs to the firm. It also assumes that the full $1,000,000 is available for use to the firm.
Answer (D) is incorrect because This percentage is calculated by dividing the discount for 3 months by the face value.
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