Calculate the annual cost for commercial paper (CP) on a $10,000,000 CP issue with a 60-day maturity at a discount rate of 7%. The prorated dealer cost for the CP works out to $2,083. The company has arranged for a backup line of credit for $10,000,000, with an annual commitment fee of 25 basis points on the line, working out to a prorated backup credit cost of $4,167.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
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    Calculate the annual cost for commercial paper (CP) on a $10,000,000 CP issue with a 60-day maturity at a discount rate of 7%. The prorated dealer cost for the CP works out to $2,083. The company has arranged for a backup line of credit for $10,000,000, with an annual commitment fee of 25 basis points on the line, working out to a prorated backup credit cost of $4,167.

 

(NOTE: When calculating, round all dollar amounts to whole dollars, and round all other intermediate calculations to four decimal places.)

 

a.     7.93%

b.    7.54%

c.     7.05%

d.    8.14%

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