CourseLover

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Teaching Since: May 2017
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    Devry University
    Sep-2004 - Aug-2010

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  • Assistant Financial Analyst
    NatSteel Holdings Pte Ltd
    Aug-2007 - Jul-2017

Category > Accounting Posted 09 Dec 2017 My Price 10.00

interest rate and the commitment fee

Hayleigh Mills Company has a $5 million revolving credit agreement with First State Bank

of Arkansas. Being a favored customer, the rate is set at 1 percent over the bank’s cost

of funds, where the cost of funds is approximated as the rate on negotiable certificates of

deposit (CDs). In addition, there is a 1⁄2 percent commitment fee on the unused portion

of the revolving credit. If the CD rate is expected to average 9 percent for the coming year

and if the company expects to utilize, on average, 60 percent of the total commitment,

what is the expected annual dollar cost of this credit arrangement? What is the percentage

cost when both the interest rate and the commitment fee paid are considered? What

happens to the percentage cost if, on average, only 20 percent of the total commitment is

utilized?

Answers

CourseLover
(12)
Status NEW Posted 09 Dec 2017 08:12 AM My Price 10.00

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