Mandel Inc. has a zero-balance account with a commercial bank. The bank sweeps any excess cash into a commercial investment account earning interest at the rate of 4% per year, payable monthly. When Mandel has a cash deficit, a line of credit is used which has an interest rate of 8% per year, payable monthly based on the amount used. Mandel expects to have a $2 million cash balance on January 1 of next year. Net cash flows for the first half of the year, excluding the effects of interest received or paid, are forecasted (in millions of dollars) as follows.
Jan Feb Mar Apr May Jun Net cash inflows ($) +2 +1 -5 -3 -2 +6
Assuming all cash-flows occur at the end of each month, approximately how much interest will Mandel incur for this period?
$17,000 net interest paid.
$53,000 net interest paid.
$76,000 net interest paid.
$195,000 net interest paid.
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