C+ Notes' Business Is Booming, and It Needs to Raise

Multiple Choice

C+ Notes' business is booming, and it needs to raise more capital.The company purchases supplies from a single supplier on terms of 1/10, net 20, and it currently takes the discount.One way of getting the needed funds would be to forgo the discount, and C+'s owner believes she could delay payment to 40 days without adverse effects.As an alternative, C+ could borrow from its bank at a rate of 12 percent, annual compounding, but with discount interest.Additionally, the bank would require a compensating balance of 20 percent of the loan amount.What is the difference between the EARs of the two financing sources?

A) 4.83%
B) 5.25%
C) 7.60%
D) 9.44%
E) 12.12%