Blackhawk Inc. arranged a $9,000,000 revolving credit agreement with a group of
ID: 2484416 • Letter: B
Question
Blackhawk Inc. arranged a $9,000,000 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 potion of the revolver, it paid 0.5% 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?
Explanation / Answer
Total dollar annual cost of the revolver = Interest Cost on Amount Borrowed + Annual Commitment Fee
Total dollar annual cost of the revolver = (9%+0.5%)*6000000 + 0.5%*(9000000-6000000)
Total dollar annual cost of the revolver = $ 585,000
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