1) A firm has the line of credit with an interest rate of 3% and a commitment fee of 0.25% based on the unused portion of the line. The total funds available on the credit line equal $5,000,000. The firm expects average daily borrowings of $3,500,000. A) What’s the effective cost of this LOC? B) If the bank asks for 10% compensating balance, what’s the effective cost of this LOC?
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1) A firm has the line of credit with an interest rate of 3% and a...
A firm has the line of credit with an interest rate of 3% and a commitment fee of 0.25% based on the unused portion of the line. The total funds available on the credit line equal $5,000,000. The firm expects average daily borrowings of $3,500,000. What’s the effective cost of this LOC? If the bank asks for 10% compensating balance, what’s the effective cost of this LOC? A firm is looking to raise $5,000,000 from the commercial paper (CP) market. ...
Firm H paid total interest of $65,000 on its line of credit borrowings for the year, as well as a $1,000 commitment fee. The firm had average daily borrowings of $800,000 for the year, but the bank retained 10% of these borrowings in the form of a compensating balance. What is annual effective rate of interest did Firm H pay on this credit line? a. 9.17% b. 8.25% c. 5.50% d. 7.75%
Short Answer Question 2: Company C has a $50M line of credit with a 5% compensating balance. The firm has outstanding borrowings of $37M. The fee on the unused portion of the line of credit is 0.25% and the interest rate on the borrowings is LIBOR of 0.28% plus 3.25%. What is the annual interest rate for the line of credit?
Golden Foods, Inc. has a revolving credit agreement with its bank under which it can borrow up to $10 million at an annual interest rate of 10%. The firm is required to maintain a 20% compensating balance on any funds borrowed under this agreement and to pay a 1% commitment fee on the unused portion of the credit line. (Assume Golden has no existing funds on deposit with the bank.) Determine the EAR assuming an average of $6 million is...
In exchange for a $540 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 1 percent per quarter on any funds actually borrowed. 2. Maintain a 4 percent compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of 13 percent of the amount of the line. Based on this information, answer the following: a. Ignoring the commitment fee, what is the effective annual interest rate on this line of...
In exchange for a $500 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 2 percent per quarter on any funds actually borrowed. 2. Maintain a 4 percent compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of .2 percent of the amount of the line. Based on this information, answer the following: a. Ignoring the commitment fee, what is the effective annual interest rate on this line of...
Bank One extends a $3 million line of credit to Castle Corp. The stated rate of interest is 9.5%. Bank One requires Castle to maintain compensating balances equal to 10% of the amount of the line. Assuming that Castle would not normally carry any deposits at the bank, what is the effective annual cost of the loan? [Note: there is no commitment fee] a 9.5% b. 10.6% c 11.6% 123%
Bank One extends a $3 million line of credit to Castle Corp. The stated rate of interest is 9.5%. Bank One requires Castle to maintain compensating balances equal to 10% of the amount of the line. Assuming that Castle would not normally carry any deposits at the bank, what is the effective annual cost of the loan? (Note: there is no commitment fee] a 95% ob 10.6% c 11.6% 123%
Centennial Hospital negotiates a $8M line of credit (LOC) with a bank. The LOC has a commitment fee of 0.25 percent (.0025). Centennial actually borrows $3M from the LOC for the year. How much is the commitment fee that Centennial must pay: $20,000 $12,500 Zero $7,500
Thomas Company has a $5 million revolving credit agreement with Bank of Central Asia. Being a favored customer, the rate is set at 1 percent over the bank’s cost of funds, where the cost of funds is approximated as the rate on negotiable certificates of deposit (CDs). In addition, there is a 1⁄2 percent commitment fee on the unused portion of the revolving credit. If the CD rate is expected to average 9 percent for the coming year and if...