Given the following information. what is the effective cost of the bonks discoun

Question

Given the following information. what is the effective cost of the bonks discount loan Iine of credit limit S9.600.000 Amount borrowed S6.000.000 Stated (nominal) interest rate 4% Maturity of loan in years 0.75 Compensating balance 10% Commitment fee up-front 0.125% Commitment fee back end 0.25% 4.17% 5.00% 5.17% None of the above Give the following information, What is the compensating balance the bank requires for your collect loan. Line of credit limit $10000000 Amount borrowed stated borrowed $6000000 state (nominal) interest rate 4% Maturity of loan in years 0.75 Effective cost of loan 5% Commitment fee up-foront 0.125% Commitment fee back end 0.25% Given the following balance sheet for 2014, The sales, net profit and dividends for 2014 are respectively, $5,500,000; $479,800; $400,000. Assume the firm is operating at capacity and total assets will stay in the same proportion to sales for 2015. All :current liabilities are spontaneously increasing. What is the external funds needed for the coming year if sales increase by 30% $900,000 $750,000 $646,250 None of the above

Explanation / Answer

Since, Part 16 and 17 have already been answered, the details for Part 18 have been given below:

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The External Funds Needed can be calculated with the use of following formula:

External Funds Needed = Current Total Assets*Growth Percentage of Sales - Spontaneous Liabilities*Growth Percentage of Sales - Current Sales*(1+Growth Rate)*Profit Margin*(1-Dividend Payout Ratio)

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Here, Current Total Assets = $3,000,000, Spontaneous Liabilities = $500,000, Growth Rate = 30%, Current Sales = $5,500,000,

Profit Margin = Net Profit/Current Sales*100 = 479,800/5,500,000*100 = 8.72%

Dividend Payout Ratio = Dividends/Net Income*100 = 400,000/479,800*100% = 83.37%

Using these values in the above formula for External Funds Needed, we get,

External Funds Needed = 3,000,000*(30%) - 500,000*(30%) - 5,500,000*(1+30%)*8.72%*(1-83.37%) = $646,315 which is closest to $646,250

Answer is $646,250 (which is Option C)

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