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Question
Indurain has a revolving credit agreement with its bank under which the firm can borrow up to $750,000 at an interest rate of 2 percent over the prime rate. Currently the prime rate is 9.5%. Indurain is required to keep a 10% compensating balance on any borrowed funds and to pay a 0.50% per year commitment fee on the unused portion of the credit line. Indurain currently maintains a checking balance of $30,000. What is the annual financing cost to borrow $500,000 for 180 days if no additional funds are borrowed the remainder of the year?a. 12.24%
b. 13.04%
c. 12.50%
d. 12.78%
Answer
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