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A firm is considering the following bank loan based on the following assumptions: $8,000,000 line of credit 6% stated rate on amount borrowed Average outstandings
A firm is considering the following bank loan based on the following assumptions: $8,000,000 line of credit 6% stated rate on amount borrowed Average outstandings estimated at $5,000,000 (this includes the firm's budgeted cash shortfall and any required compensating balances) 10% compensating balance requirement on funds borrowed 40 bps (.40%) non-usage fee Usable Funds Borrowed (the denominator) are: Interest Expense + Commitment Fee Effective Cost = Usable Funds Borrowed $8,000,000 O $7,200,000 $5,000,000 $4,500,000
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