Tri-State Enterprises plans to issue commercial paper for the first time in the firm’s 35-year history. The firm plans to issue $500,000 in 180-day…

Tri-State Enterprises plans to issue commercial paper for the first time in the firm’s 35-year history. The firm plans to issue $500,000 in 180-day maturity notes. The paper will carry a 10.5% rate with discounted interest and will cost Tri-State $12,000(paid in advance) to issue.a. What is the effective cost of credit to Tri-State?

Issue amount = 500000*(1+.105*180/360)=475059.38Cost of credit =(500000-475059.38)/(475059.38-12000)*360/180=10.77%