Memphis Metro, a service-based firm that provides high-performance training for competitive junior volleyball players, has a credit line with the following specifications: Average daily borrowings of $400,000 on a $500,000 committed credit line Annual interest expense on the credit line of $14,500, Commitment fee of $500 Calculate the effective borrowing cost for the credit line. Recalculate the effective cost of the credit line with a compensating balance requirement of 5 percent. Recalculate the effective cost of the credit line with a compensating balance requirement of 10 percent. Discuss why the effective borrowing cost increases for a, b, and c.
Memphis Metro, a service-based firm that provides high-performance training for competitive junior volleyball players, has a credit line with the following specifications: Average daily borrowings of $400,000 on a $500,000 committed credit line Annual interest expense on the credit line of $14,500, Commitment fee of $500 Calculate the effective borrowing cost for the credit line. Recalculate the effective cost of the credit line with a compensating balance requirement of 5 percent. Recalculate the effective cost of the credit line with a compensating balance requirement of 10 percent. Discuss why the effective borrowing cost increases for a, b, and c.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Memphis Metro, a service-based firm that provides high-performance training for competitive junior volleyball players, has a credit line with the following specifications:
- Average daily borrowings of $400,000 on a $500,000 committed credit line
- Annual interest expense on the credit line of $14,500,
- Commitment fee of $500
- Calculate the effective borrowing cost for the credit line.
- Recalculate the effective cost of the credit line with a compensating balance requirement of 5 percent.
- Recalculate the effective cost of the credit line with a compensating balance requirement of 10 percent.
- Discuss why the effective borrowing cost increases for a, b, and c.
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