Question 1: What is the effective borrowing rate for a 1-year line of credit, if the total credit line = $3,000,000, average loan outstanding = $1,400,000, commitment fee = 0.5% on the unused portion, and interest rate = LIBOR + 1.5% (LIBOR is currently 6.25%)? There are no compensating balances, and the year basis is 365 days.
a. 7.58%
b. 8.21%
c. 8.25%
d. 8.32%
e. 8.77%
Question 2: Fickle Sickles collects 25,000 checks per 365-day year with average amount $180 and total delay 4 days. A lockbox system would reduce that delay to 2 days, and it would also reduce FISI's check processing costs by $.01 per check. The annual fee on the lockbox would be $2500. What is the annual net benefit associated with using the lockbox? FISI has an 8% cost of capital.
a. - $777
b. - $277
c. $551
d. $603
e. $1695