Solution-Calculate the effective cost of the credit line

Calculate the effective cost of the credit line

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Reference no: EM133071927

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Q1. On an average daily basis, Memphis Metro borrows $400,000 from a $500,000 committed credit line. The annual interest expense paid is $14,500 and the commitment fee equals $500.

a. Calculate the effective cost of the credit line.

b. Recalculate the effective cost of the credit line with a compensating balance of 5%.

c. Recalculate the effective cost of the credit line with the compensating balance of 10%.

d. Recalculate the effective cost of the credit line with the compensating balance of 15%.

Q2. Tupelo Juniors is a competitor of Memphis metro. Suppose that Tupelo juniors borrow $400,000 from a $500,000 committed credit line., but Tupelo Juniors has an annual interest expense charge of $23,000 and a commitment fee of $1000. Compare the effective cost of credit across these competing firms.

Reference no: EM133071927

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Calculate the effective cost of the credit line

Reference no: EM133071927

Reference no: EM133071927

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