Reference no: EM133000616
Question - A company has a credit line that has both interest charges and commitment fees. Calculate their average loan outstanding and costs on this credit line based on the following information:
Maximum Operating Credit Line = $4,000,000
Interest Charges are calculated using an 8% per annum rate, with interest payable monthly on any used portion. (To simplify, assume no interest is charged on interest due, as it is to be paid for immediately from cash available.)
Commitment fees are calculated based on a 1% per annum rate, with fees payable monthly on any unused portion.
The firm uses $4,000,000 in January through April, $2,500,000 in May through July, and $1,400,000 in the months of August through December.
Required -
1. What the average amount of the outstanding loan to the nearest dollar?
2. What the dollar cost of interest charges for the year?
3. What the dollar cost of commitment fees for the year?
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