Estimate the cost of credit line
Course:- Financial Management
Reference No.:- EM13943014

Assignment Help
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

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
An option dealer needs to finance the purchase of a security and holds an inventory of U.S. Treasury bills. Explain how the dealer can use the repo market for financing the
Ford has a $20 million Eurodollar deposit maturing in 2 months that it plans to roll over for a further six months. The company treasurer feels that interest rates will be low
In February of 2000 the NASDAQ Composite index peaked at a level of 4,698 ?(just before the Tech Bubble?popped). In February of 2006 it was at a level of 2,012. The NASDAQ ind
In two paragraphs describe how Procter and gambles stock has performed in the short term and the long term. Discuss the trends and offer opinions as to why the stock has perfo
You have just received notification that you have won the $2.11 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assum
Kristin Malone opened Kristin's Maids Cleaning Service on July 1, 2017. During July, the company completed the following transactions. July 1 Stockholders invested $14,000 cas
Consider a firm that had been priced using a 10 percent growth rate and a 12 percent required return. The firm recently paid a $1.50 dividend. The firm just announced that bec
Your firm is considering leasing a new radio graphic device. The lease lasts for three years. The lease calls for four payments of $25,000 per year with the first payment occu