Weiss Inc.arranged a $10,000,000 revolving credit agreement with a group of banks.The firm paid an annual commitment fee of 0.5% on 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 9% 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? Do not round intermediate calculations.

Question

Quizplus · Accepted Answer

The annual commitment fee is 0.5% on the unused balance, so the cost for this part of the revolver is:

0.005 x $4,000,000 (unused portion) = $20,000

For the used portion of the revolver, the cost is 1.5% above prime, or:

1.5% x $6,000,000 = $90,000 above prime

Prime rate is 9%, so the cost above prime is:

($6,000,000 x 0.09) + $90,000 = $630,000

Therefore, the total cost of the revolver for one year is:

$20,000 + $630,000 = $650,000 (Option C)

Weiss Incarranged a $10,000,000 Revolving Credit Agreement with a Group of of Banks.The