Homework 9-4

# Homework 9-4 - A B Estimate the effective cost of the...

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A) Face amount \$15,000,000 Discount \$46,250 Discount rate 3.70% Annual Fee \$1,250 Maturity (in days) 30 Commitment Fee for credit line \$3,125 Dealer annual fee 0.10% Commitment fee 0.25% Effective Cost 4.12% B) Face amount \$15,000,000 Discount \$46,250 Discount rate 3.70% Annual Fee \$1,250 Maturity (in days) 30 Commitment Fee for credit line \$37,500 Dealer annual fee 0.10% Commitment fee 0.25% Effective Cost 6.82% Estimate the effective cost of the commerical paper assuming that this is the only commeric issue planned for the year Estimate the effective cost of the commerical paper assuming that there will be recurring issues of commercial paper all year long

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cal paper
Calculate the effective cost of both proposals and indicate which proposal is the one that should be take

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Unformatted text preview: Bank oF the West Bank oF the East Prime 6.00% Prime Commitment ±ee 0.25% Commitment ±ee CompensaTng Dollars 20.00% CompensaTng Dollars Line oF Credit \$80,000,000 Line oF Credit Amount Borrowed \$65,000,000 Amount Borrowed Days oF Borrowing 365 Days oF Borrowing Interest Expense \$3,900,000 Interest Expense Commitment Fee \$37,500 Commitment Fee Balance Requirement \$13,000,000 Balance Requirement EfecTve Cost 7.57% EfecTve Cost ±he proposal that should be taken is ²rom Bank o² the West as the efecTve cost is the less ken 5.75% 0.20% 25.00% \$95,000,000 \$65,000,000 365 \$3,737,500 \$60,000 \$16,250,000 7.79% ser of the two...
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• Spring '14
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• Interest, Commitment fee

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