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The Vandergrift Company has a revolving credit agreement with Commerce Bank under which the company can borrow up to $5 million at an annual interest rate of 1 percentage point above the prime rate (currently 9 percent). The company is required to maintain a 10 percent compensating balance on any funds borrowed under the agreement and to pay a 0.4 percent commitment fee on the unused portion of the credit line.
Assume that Vandergrift has no funds in its account at Commerce Bank that can be used to meet the compensating balance requirement. Determine the annual financing cost of borrowing each of the following amounts under the credit agreement:
a. $1 million
b. $4 million
Joe secured a loan of $12,000 five years ago from a bank for use toward his college expenses. The bank charges interest at the rate of 4%/year compounded monthly on his loan. Now that he has graduated from college, Joe wishes to repay the loan by amo..
BDU Company has set up a new product line in January 2015. The dividend is expected to grow at 8% per year for the next 15 years. Then at 3% thereafter. The required return is 12% and the dividend in the coming year is $3.00. What is the stock price?..
What does the acronym CAMELS refer to in commercial bank examinations? What are the most important facets of an examination?
Consider the numbers in the previous question. Assume that if the peso were to depreciate, investors figure it will depreciate by 25%. Also, assume that if the Argentine bank were to default on its dollar obligations, it would pay nothing to investor..
Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10..
ABC’s credit terms are 1/7, net 40. Based on experience, 38 percent of all customers take the discount. ABC has annual credit sales of $184,524. What is the average investment in accounts receivable as shown on the balance sheet?
Two stamping machines are under consideration for purchase by a metal recycling company. The manual model will cost $25,000 to buy with an eight-year life and a $5,000 salvage value. Its annual operating costs will be $16,000. Calculate the annual wo..
Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 10.97 percent. What is the NPV of a project if the initial costs are $1,466,210 and the project life is estimated as 10 years? T..
A construction company is considering an expansion project. So far, they have spent $75,000 investigating the viability of the project and have decided to proceed. The proposed project will cost approximately $450,000 in addition to the $75,000 that ..
often organizations enter the marketplace with one approach and model. as the economy and demands shift and technology
A cash strapped young professional offers to buy your car with four, equal annual payments of 3000, beginning 2 years from today. Assuming your indifferent to cash versus credit, that you can invest at 10%, and that you want to recieve 9,000 for the ..
If you deposit $5,900 at the end of each of the next 20 years into an account paying 10.8 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years?
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