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Question
Hoffman Industries has negotiated a revolving credit agreement with its bank. The bank will loan Hoffman up to $300,000 at an annual interest rate of 10% and requires a 0.3% commitment fee on the unused portion of the credit agreement. The bank's standard policy requires all loan customers to maintain a 10% compensating balance on any amount borrowed. Hoffman currently maintains an average balance of $8,000 that can be used to meet any compensating balance requirements. Compute the annual financing cost of the revolving credit agreement, if the firm borrows an average of $180,000 throughout the year.a. 10.80 percent
b. 10.20 percent
c. 12.71 percent
d. 2.0 percent
Answer
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Related questions
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Q:
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Q:
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b. relevant information is readily available for individuals and is costless to obtain
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b. the value of the firm is independent of its capital structure in perfect capital markets with no income taxes
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Q:
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Q:
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a. $0.71
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c. $4.03
d. $3.33