Bandolier Bicycles has a committed line of credit with a maximum of $450,000 and interest rate of 4% (EAR).The loan has a commitment fee of 0.3% (EAR).If the firm borrows $375,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Question

Quizplus · Accepted Answer

The total cost of the loan is the interest expense plus the commitment fee. The interest expense is $375,000 * 4% = $15,000. The commitment fee is $450,000 * 0.3% = $1,350. Therefore, the total cost of the loan is $15,000 + $1,350 = $16,350.

Bandolier Bicycles Has a Committed Line of Credit with a Maximum