Gorman Inc.arranged a $10,000,000 revolving credit agreement with a group of banks.The firm paid an annual commitment fee of 0.5% of 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 1 year,what was its total dollar cost for the year?

Question

Quizplus · Accepted Answer

The Answer of Gorman Inc.arranged a $10,000,000 revolving credit agreement with a group of banks.The firm paid an annual commitment fee of 0.5% of 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 1 year,what was its total dollar cost for the year?