ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next
Posted: Thu Apr 28, 2022 1:35 pm
ABC Company is considering to establish a line of credit with a
local bank to make up for the cash deficit for the next three
months. The company expects a 60% chance for a $222,589 deficit and
a 40% chance for no deficit at all. The line of credit charges
0.62% of interest rate per month on the amount borrowed plus a
commitment fee of $2,500 for a quarter. It also requires a 5%
compensation balance for outstanding loans. The company can
reinvest any excess cash at an annual rate of 8%. What will the
expected cost of establishing a line of credit be? Round your
answer to the nearest dollar. (Hint: Refer to a numerical example
in short-term financing choices.) Group of answer choices $5,115
$5,105 $5,125 $5,120 $5,110
local bank to make up for the cash deficit for the next three
months. The company expects a 60% chance for a $222,589 deficit and
a 40% chance for no deficit at all. The line of credit charges
0.62% of interest rate per month on the amount borrowed plus a
commitment fee of $2,500 for a quarter. It also requires a 5%
compensation balance for outstanding loans. The company can
reinvest any excess cash at an annual rate of 8%. What will the
expected cost of establishing a line of credit be? Round your
answer to the nearest dollar. (Hint: Refer to a numerical example
in short-term financing choices.) Group of answer choices $5,115
$5,105 $5,125 $5,120 $5,110