Grappler Inc. has an approved $200,000 committed line of credit with the Banque de la Nouvelle-cosse on March 1, 2020. An interest rate of prime

Grappler Inc. has an approved $200,000 committed line of credit with the Banque de la Nouvelle-Écosse on March 1, 2020. An interest rate of prime plus 2.1% was negotiated along with a commitment fee of 0.25% and a compensating balance of 8%. The prime rate is currently 4.00%. Interest is paid at the end of each month and is calculated daily. The line of credit is secured by accounts receivable and inventories. The company can borrow no more than 70% of its accounts receivable and 30% of its inventories. The balance of the line of credit during March was: From To Amount March 1 March 12 $92,000 March 13 March 27 $103,000 March 28 March 31 $110,000 The prime rate increased to 5.00% on March 19, 2020. At the end of March 2020, there were $150,000 in inventories and $180,000 in accounts receivable.

REQUIRED:

A. Calculate the annual APR cost and EAR cost of borrowing for this revolving credit agreement based on March.

B. How much more could Grappler Inc. borrow on its revolving credit agreement at the end of March?

Solve Process:

1. Calculate interest amounts

2. Calculate commitment fees on unused line of credit and add that to the interest amounts

3. Calculate the weighted average of borrowing over the period (considering the compensating balance).

4. Calculate the period interest rate. 5. Annualize. 6. For the borrowing limit: calculate the amount based on receivables and inventory volume.