EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 16, Problem 21P

a)

Summary Introduction

To determine: The annual financing cost.

a)

Expert Solution
Check Mark

Explanation of Solution

Computation:

Interest cost=Loan amount×Annual interest rate=$250,000×9%=$22,500

Commitment fee=$1,000,000$250,000×0.5%=$3,750

Usable fund=Loan amount×1 compensating balance rate=$250,000×10.10=$225,000

Annual financing cost=Interest cost+commitment feeUsable funds×365365×100=$22,500+$3,750$225,000×365365×100%=11.67%

Hence, the annual financing cost is 11.67%.

b)

Summary Introduction

To determine: The annual financing cost.

b)

Expert Solution
Check Mark

Explanation of Solution

Computation:

Interest cost=Loan amount×Annual interest rate=$500,000×9%=$45,000

Commitment fee=$1,000,000$500,000×0.5%=$2,500

Usable fund=Loan amount×1 compensating balance rate=$500,000×10.10=$450,000

Annual financing cost=Interest cost+commitment feeUsable funds×365365×100=$45,000+$2,500$450,000×365365×100%=10.56%

Hence, the annual financing cost is 10.56%.

c)

Summary Introduction

To determine: The annual financing cost.

c)

Expert Solution
Check Mark

Explanation of Solution

Computation:

Interest cost=Loan amount×Annual interest rate=$1,000,000×9%=$90,000

Commitment fee=$1,000,000$1,000,000×0.5%=$0

Usable fund=Loan amount×1 compensating balance rate=$1,000,000×10.10=$900,000

Annual financing cost=Interest cost+commitment feeUsable funds×365365×100=$90,000$900,000×365365×100%=10%

Hence, the annual financing cost is 10%.

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