Reference no: EM133065703

Questions -

Q1- Tupelo Juniors Corporation is facing a cash crunch and needs to issue $7,500,000 in commercial paper with a maturity of 45 days at a discount rate of 1%. The dealer fees on the issuance equal 0.15%. The firm will open a new committed credit line to back up the commercial paper. The commitment fee equals 0.50% on the unused line in the amount of $7,500,000.

a. Calculate the number of funds raised through the issuance.

b. Calculate the dealer fee.

c. Calculate the commitment fee.

d. Calculate the effective cost.

Q2- Ralph, treasurer for Petrova Imports, recently updated his firm's short-term cash forecast only to discover that the firm will suffer a cash shortage of $15 million for a period of 30 days. Ralph just learned from one of his dealers that commercial paper in the 30-day maturity range is in demand and that discount rates are roughly 3.7%. The dealer's annual fee is 0.10% and the annual commitment fee on a backup line of credit is 0.25%. Calculate the effective cost of the commercial paper.