Estimate the effective cost of the credit line

Assignment Help Finance Basics

Reference no: EM13305167

You recently approached your bank about a credit line. The terms offered to you include a rate of prime plus 1 percent on the amount borrowed. Prime is currently 3.25%. There is also a commitment fee of 20 basis points on the unused portion of the credit line and a compensating balance of 15% on the amount borrowed.

You decide to establish the line of credit for $40 million. Currently, your company does not hold balances in their accounts at the bank and pays fees for all cash management services.

A. Estimate the yearly cost of the credit line if the average monthly amount used is $30 million.

B. If your company chose to start keeping the compensating balance at the bank, estimate the effective cost of the credit line.

Reference no: EM13305167

Questions Cloud

What about the ratio of the market value of debt : What about the ratio of the market value of debt to that of equity? Would you judge that leverage has increased, decreased or stayed the same? Justify all answers.

Determine the radius of the droplet : An oil droplet with 13.0 excess electrons is observed between two parallel electrodes spaced 11.0mm apart. What is the radius of the droplet

What will net increase or decrease in the annual flotation : The amortization of flotation costs reduces taxes, and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?

What is the wires linear charge density : A proton orbits a long charged wire, making 1.60 x 10^6 revolutions per second. The radius of the orbit is 1.40cm. What is the wire's linear charge density

Estimate the effective cost of the credit line : You decide to establish the line of credit for $40 million. Currently, your company does not hold balances in their accounts at the bank and pays fees for all cash management services.

How a project risk management strategy : Critically and effectively assess the value of theories, concepts and models to the practice of Project Risk and Procurement Management and demonstrate a sound understanding of the importance of risk management in the development and maintenance ..

Construct a decision tree to help analyze this problem : In the absence of any market data, the best the physicians can guess is that there is a 50-50 chance the clinic will be successful. Construct a decision tree to help analyze this problem. What should the medical professionals do?

Find the length of the rod at the freezing point of water : An aluminum-alloy rod has a length of 10.007 cm at 16.600 °C and a length of 10.023 cm at the boiling point of water. find the length of the rod at the freezing point of water

What is the speed of the ball when it strikes the ground : A 150g ball is thrown vertically upward from a window 10m above the ground at speed of 30 m/s What is the speed of the ball when it strikes the ground

User Account

All Pages