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Firlakuza [10]
3 years ago
9

Sanders Enterprises arranged a revolving credit agreement of $9,000,000 with a group of banks. The firm paid an annual commitmen

t fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year. If the firm borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar annual cost of the revolver?
Business
1 answer:
Usimov [2.4K]3 years ago
5 0

Answer:

Total dollar Annual Cost = $300,000

Explanation:

  • Total loan Commitment = 9000000
  • Borrowed Fund (Used Portion) = 6000000
  • Unused Portion (9000000 - 6000000) = 3000000
  • Annual Commitment Fee for unused Portion = 0.50%
  • Commitment Fee = 3000000 x 0.05% = 15000
  • Borrowed Fund (Used Portion) = 6000000
  • Interest Rate (3.25% + 1.5%) = 4.75%
  • Interest Cost (6000000 x 4.75%) = 285000

Total dollar Annual Cost (15000 + 285000) = $300,000

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Kenny Electric Company's noncallable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9
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Answer:

d. 5.08%

Explanation:

We have to first calculate the YTM of the bond, and then apply the tax shield.

To get the YTM we have to calculate the rate of return of an annuity of 46.25 for 20 years compounding semiannually at IRR rate and the present value of the face value redeem in 20 years.

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46.25 \times \frac{1-(1+IRR/2)^{-20*2} }{rate} + 1000/(1+IRR)^{20}= 1075\\

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3 years ago
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