The annual financing cost.

Question

Stephens Metals Company has a revolving credit agreement with its bank permitting it to borrow up to $25 million at an annual interest rate of 12. Stephens is required to maintain a 10% compensating balance on any funds borrowed under this agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. The company maintains a $500,000 balance at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost of borrowing the $20 million under this revolving credit. *show work* A) 13.3% B) 13.5% C) 13.1% D) 12.0%

Answer 1

Question

Chapter 16, Problem 30P

a)

Summary Introduction

To determine: The annual financing cost.

b)

Summary Introduction

To determine: The annual financing cost.

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Stephens Metals Company has a revolving credit agreement with its bank permitting it to borrow up to $25 million at an annual interest rate of 12. Stephens is required to maintain a 10% compensating balance on any funds borrowed under this agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. The company maintains a $500,000 balance at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost of borrowing the $20 million under this revolving credit. *show work* A) 13.3% B) 13.5% C) 13.1% D) 12.0%

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