+1-415-670-9189
info@expertsmind.com
Estimate the cost of credit line
Course:- Financial Management
Reference No.:- EM13943014




Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Financial Management

You recently approached your bank about establishing a credit line facility. The terms offered by your bank include a nominal rate of prime + 1.5% (prime is currently 5%) on the amount borrowed, a commitment fee of 25 basis points on the unused portion of the credit line, and a compensating balance of 10% on the amount borrowed.

You decide to establish the line for $75 million. Over the course of a year, you anticipate the average amount borrowed to be $55 million. Your firm keeps no balances at the bank paying fees for all cash management services.

Estimate the cost of credit line.

Assume that the firm did have cash balances to cover the required compensating balances resulting from the credit line borrowings. Estimate the effective cost of the credit line.




Put your comment
 
Minimize


Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
MacDonald's Hamburger Company wants to hedge its anticipated purchase of 1,600,000 pounds of hamburger with the live cattle futures contract (40,000 lb. of live cattle per fut
Twice Shy Industries has a debt−equity ratio of 1.4. Its WACC is 9.4 percent, and its cost of debt is 6.7 percent. The corporate tax rate is 35 percent. What is the company’s
ABDCo has a beta of 1.05 and Cloud9 has a beta of 0.35. If you want a portfolio with a 0.5 beta, what is the weighting of ABDCo in the combined portfolio to accomplish your go
KNF stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and -17% in a recessionary period. The probability
Now, suppose that two companies are looking at the same project. Company "A" has a beta of 1.5 and a cost of capital of 25%. Company "B" has a beta of 0.8 and a cost of capita
Name a firm that mitigated foreign exchange risk through methods such as currency swaps, currency futures, forward transactions, etc. What method was used and what was the res
Dividends and Retained Earnings Suppose Billy’s Exterminators (below) paid out $95,000 in cash dividends. What is the addition to Retained Earnings? Billy’s Exterminators: Sal
Dressler Technologies is considering a project with a 3-year life and an initial cost of $87,000. The discount rate for the project is 14.5 percent. The firm expects to sell 1