The Cattleman's Bank has offered the treasurer another deal, a line of credit up to $10 million with an annual interest rate of 10.5%. One covenant of the proposal is that Cattle Express must maintain a compensating balance equal to 10% of the amount of debt taken from the line of credit. Cattle Express will not have access to the compensating balance, nor earn any interest for the company. The tax rate is 40%. What is the effective cost of the line of credit? Submit %

The Cattleman's Bank has offered the treasurer another deal, a line of credit up to $10 million with an annual interest rate of 10.5%. One covenant of the proposal is that Cattle Express must maintain a compensating balance equal to 10% of the amount of debt taken from the line of credit. Cattle Express will not have access to the compensating balance, nor earn any interest for the company. The tax rate is 40%. What is the effective cost of the line of credit? Submit %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 31P

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