Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,180,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $171,600 for the month of January. Month Amount borrowed or (repaid) Month January February Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. January February $171,600 (37,200) Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month

Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,180,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $171,600 for the month of January. Month Amount borrowed or (repaid) Month January February Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. January February $171,600 (37,200) Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 30P

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