Answer:
$575,000
Explanation:
Data provided:
The total amount for the credit agreement = $7,000,000
The amount borrowed by the firm = $6,000,000
The annual commitment fee for the unused balance = 0.5%
Prime rate of interest = 8%
Interest paid above the prime rate = 1.5%
Now,
the unused amount = $7,000,000 - $6,000,000 = $1,000,000
The amount of commitment fees paid
= total unused amount × Annual commitment fees
= $1,000,000 × 0.005
= $5000
Total interest paid on the borrowed amount
= Amount borrowed × (prime rate + additional rate)
= $6,000,000 × ( 0.08 + 0.015)
= $6,000,000 × 0.095
= $570,000
Hence,
the total dollar annual cost of the revolver
= interest paid on the borrowed amount + amount of commitment fees paid
= $570,000 + $5000
= $575,000
