Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your an
Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your an
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.)
Group of answer choices:
$5,255
$5,240
$5,251
$5,260
$5,246
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