common stock

BoGo Textbooks is evaluating two options for funding its working capital during the next year. Option 1 is borrowing from the bank using a 180-day discount interest loan, which has a quoted interest rate equal to 8 percent and requires a 20 percent compensating balance. BoGo normally maintains an average checking account balance of $10,000. Option 2 is to issue 180-day commercial paper, which has an annual interest equal to 9 percent and requires BoGo to pay a transactions fee equal to 0.3 percent. If the amount borrowed with either option is $200,000, which one should BoGo choose?