| Course | GF583 Treasury Management I |
|---|---|
| Unit | Unit 8 |
| Paper type | Borrowing arrangement comparison |
| Length | About 850 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF583 Unit 8
Cheaper by the Rate, Riskier by the Season: A Unit 8 Borrowing Arrangement Comparison for a Distributor
[Student Name]
Purdue University Global
GF583: Treasury Management I
Unit 8 Borrowing Arrangement Comparison
[Instructor Name]
[Date]
The distributor, the bank terms and the paper quotes are composite and illustrative; the articles and textbook cited are real.
The Need
The extended cash forecast shows monthly average borrowing, in millions of dollars, of 4 in February, 44 in March, 26 in April, 48 in May, 30 in June and 8 in July. The six-month average is about 26.7 and the peak 48. The company needs funding that is cheap on average and reliable at the peak.
The Terms
Committed revolving credit line. $250 million from a group of four banks, with drawn balances costing the overnight benchmark rate, SOFR, plus 1.25 points, about 5.30 percent with that rate at 4.05 percent. An unused fee of 0.20 percent applies to the undrawn amount.
Commercial paper program. The company could issue unsecured paper with maturities of up to 90 days through a dealer. With a second-tier short-term rating, it would pay about 4.85 percent plus a dealer fee of about 0.10 percent, about 4.95 percent all in. Rating agency and issuing agent fees would add about $25,000 for the half year. Investors and rating agencies require that the paper be backed by a committed bank line, so the revolver would remain in place either way.
Structure 1: Revolver Only
Interest: about $26.7 million times 5.30 percent times one half, about $706,700. Unused fee on the remaining capacity: about $223,300 for six months, payable under either structure because the revolver is kept.
Structure 2: Commercial Paper for the Whole Need
Interest: about $26.7 million times 4.95 percent times one half, about $660,000. Program fees: about $25,000. Total compared with the revolver's interest: about $685,000, a saving of about $21,700.
Structure 3: Paper for the Base, Revolver for the Peaks
Issuing paper only for the roughly $20 million needed in every month from March to June, and drawing the revolver for everything else, would save about $23,000 in interest over those four months but cost about $25,000 in program fees, a small net loss. It reduces the amount rolled in the paper market at the peak but shows how quickly fixed fees consume the rate advantage on a modest balance.
The paper program saves about $21,700 over six months only if the market stays open and calm at every rollover, and the company's need is highest in May, exactly when it would be most exposed to a market that has closed to second-tier issuers before.
The Risk Section
Rollover risk. Commercial paper must be reissued as it matures. Second-tier issuers are the first to lose access when investors become cautious. In 2008, the paper market shrank sharply and rates for lower-rated issuers rose well above bank lines (Kacperczyk & Schnabl, 2010).
What would erase the saving. If paper rates for second-tier issuers rose two percentage points for three weeks at the May peak of $48 million, the extra cost would be about $55,000, more than twice the saving. If the market closed and the company had to move the whole $48 million to the revolver at short notice, the cost would be smaller in interest but the operational strain larger.
Line access. The revolver is committed, and research on credit lines finds that banks rarely refuse draws to borrowers in good standing, though they can restrict access when covenants are breached (Sufi, 2009). The company's coverage is comfortable.
Other Considerations
A paper program requires a short-term credit rating, which the company does not currently have. Obtaining one would take about three months and impose ongoing disclosure. The program's value depends on borrowing regularly; with a need that falls to $4 to $8 million in some months, issuance would be small and irregular, which investors dislike (Bragg, 2010).
What the Revolver Costs Beyond Interest
The revolver's unused fee, about $223,300 for the half year, is the price of having $250 million available on demand. It is paid whether or not the company issues paper, so it does not favor either structure, but it is a reminder that the company already pays for reliability. Using that reliability rather than replacing it with a cheaper but less dependable source is consistent with what the fee buys.
A Middle Path for the Future
If borrowing grows, the company could seek a short-term rating while keeping the revolver as its main source, so that a paper program can be started quickly when the saving justifies it. That option costs little to prepare and avoids committing to issuance before the need is large enough.
Board Reporting
The finance committee will see the comparison each year at renewal, with the current spread between paper and revolver rates.
Recommendation
Keep the revolver as the sole source of seasonal borrowing and do not start a paper program. Revisit the question if average borrowing grows above about $75 million, when the annual saving would become meaningful against the program's fixed costs and rollover risk.
References
Bragg, S. M. (2010). Treasury management: The practitioner's guide. Wiley.
Kacperczyk, M., & Schnabl, P. (2010). When safe proved risky: Commercial paper during the financial crisis of 2007-2009. Journal of Economic Perspectives, 24(1), 29-50. https://doi.org/10.1257/jep.24.1.29
Sufi, A. (2009). Bank lines of credit in corporate finance: An empirical analysis. The Review of Financial Studies, 22(3), 1057-1088. https://doi.org/10.1093/revfin/hhm007
GF583 Unit 8 instructions, in plain terms
Unit 8 of GF583 asks you to compare ways of financing a seasonal need. Start from the forecast's monthly borrowing profile, with the average and peak. Set out the terms of each option, including rates, fees and any requirement such as a backup line. Price each structure over the season, including a mixed structure, and show the arithmetic. Then assess the risks: rollover risk, market access in stress, line availability and the operational demands of each option. Quantify what would erase any saving. Note requirements such as a credit rating and the scale at which an option becomes worthwhile. Recommend a structure and a threshold for revisiting it. Cite research on commercial paper markets, credit lines and a treasury text in APA 7.
Inside the GF583 Unit 8 example
Monthly borrowing from February to July opens the sample, with the average and peak. The terms section describes the revolver and a paper program that would still need the revolver as backup. Structure 1 prices the revolver's interest and unused fee, Structure 2 prices paper with program fees, and Structure 3 shows fixed fees eating a partial program's saving. The highlighted sentence weighs the saving against when the need peaks. The risk section draws on Kacperczyk and Schnabl for the 2008 paper market and on Sufi for how banks honor credit lines, and quantifies the cost of a rate spike. A section on other considerations cites Bragg, notes on the unused fee and a middle path follow, and the recommendation sets a $75 million threshold.
Reading the GF583 Unit 8 grading rubric
GF583 borrowing comparisons earn most of their points from correct cost calculations for each structure over the actual borrowing profile. Graders check that common costs, such as the revolver's unused fee, are treated consistently across structures. The analytical share rewards a risk assessment that quantifies what would erase the saving and connects it to when the company's need peaks. Attention to practical requirements, such as a short-term rating and minimum scale, shows judgment. Instructors in the MS in Finance program value a recommendation with a threshold for revisiting it. Research on paper markets and credit lines, cited in APA 7 with the treasury text, completes the grade.
Common GF583 Unit 8 mistakes, and how to avoid them
Many GF583 Unit 8 comparisons recommend commercial paper because its rate is lower, without pricing the program fees or the backup line it requires. Others compare costs at the peak balance instead of the monthly profile. Rollover risk is described in general terms without asking when the company's need is greatest. The revolver's unused fee is counted against one structure only. Scale requirements for a paper program are ignored. For any borrowing need your case presents, keep the steps: profile, terms, costs by structure, risks quantified, practical requirements and a recommendation with a threshold.
Get a GF583 Unit 8 example written to your instructions
Borrowing need by month, the facility terms and any commercial paper pricing given in your Unit 8 materials, plus the prompt and rubric, suffice to begin. The custom comparison prices both arrangements with every fee included and states when the answer would change; expect it within 24-48h, with the first at no charge. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF583 Unit 8 questions, answered
Why must commercial paper be backed by a credit line?
Because paper is repaid by issuing new paper, and if investors stop buying, the issuer needs another source of cash on the day a note matures. Rating agencies and investors generally expect a committed bank line covering the amount outstanding. That line carries fees whether or not it is drawn, so its cost belongs in any comparison of the two arrangements.
Can a mid-sized company issue commercial paper?
Some can, but access usually depends on size, a short-term credit rating and regular borrowing needs large enough to justify program costs. Firms below that threshold rely on bank lines, and some use asset-backed alternatives. If your case firm seems too small for a program, saying so and pricing paper as a hypothetical is a reasonable approach that graders tend to accept.
Should the comparison use the peak or the average balance?
Both, for different purposes. Interest cost depends on the balance carried each month, so the average drives the pricing. The peak determines how large the committed line must be and how much paper would need rolling at the worst moment. A comparison that uses only one of them misstates either the cost or the risk it is meant to weigh.
Where can I find a free GF583 Unit 8 sample paper?
A full GF583 Unit 8 borrowing arrangement comparison of a revolver and commercial paper for a seasonal distributor is on this page, with costs, rollover risk, a threshold and APA 7 references.
What would wipe out the commercial paper saving?
A rise of two percentage points in second-tier paper rates for three weeks at the $48 million May peak would cost about $55,000, more than twice the $21,700 the program saves over the season.