please help
Intergrative-Comparison of loan terms Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank's terms for a line of credit are 3 40% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. For an equivalent revolving credit agreement, the rate is 1.90% over prime with a commitment fee of 0.5% on the average unused balance. With both loans, the required compensating balance is equal to 10% of the amount borrowed. (Note: Cumberland currently maintains $0 on deposit at the bank.) The prime rate is currently 6%. Both agreements have $15,000,000 borrowing limits. The firm expects on average to borrow $6,000,000 during the year no matter which loan agreement it decides to use a. What is the effective annual rate under the line of credit? b. What is the effective annual rate under the revolving credit agreement? (Hint. Compute the ratio of the dollars that the firm will pay in interest and commitment fees to the dollars that the c. If the firm does expect to borrow an average at half the amount available, which arrangement would you recommend for the borrower? Explain why, a. The effective annual rate under the ine of credit is % (Round to two decimal places) b. The effective annual rato under the revolving credit agreement is % (Round to two decimal places. ) c. If the firm expects to borrow $6,000,000, which arrangement would you recommend for the borrower? (Select the best answer below) O A Line of credit OB Revolving credit agreement Integrative Comparison of loan terms Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The banks or for a line of creditare 3.40% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. For an equivalent revolving credit agreement, the rate is 1 90% over prime with a commitment fee of 0.5% on the average unused balance With both loans, the required compensating balanon is equal to 10% of the amount borrowed (Note Cumberland currently maintains $0 on deposit at the bank.) The prime rate is currently 6% Both agreements have $15.000.000 borrowing times. The firm expects on average to borrow $6,000,000 during the year no matter which loan agreement it decides to use What is the effective annual rate under the line of credit? b. What is the effective annual rate under the revolving credit agreement? (Mint Compute the ratio of the dollars that the firm will pay in interest and commitment foes to the dollars that the e. If the firm does expect to borrow an average of all the amount available, which arrangement would you recommend for the borrower? Explain why . The effective annual rate under the line of credit is % (Round to two decimal places.) D. The effective annual rate under the revolving credit agreement is). (Round to two decimal places) c. If the firm expects to borrow 36,000,000, which arrangement would you recommand for the borrower? (Select the best answer below.) O A Line of credit OB Revolving credit agreement
