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problem: Pyramid Products Company has a revolving credit contract with its bank The Firm can borrow up to 1 million dollar under the contract at a yearly interest rate of 9 percent. Pyramid is required to maintain a 10 percent compensating balance on any funds borrowed under contract and to pay a .5% commitment fees on the unused portion of the credit line. Suppose that Pyramid has no funds in account at the bank that can be used to meet compensating balance requirement. Find the yearly financing cost of borrowing each of the following amounts under the credit contract;

[A] $500,000

[B] 1,000,000

[C] $250,000

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M923153

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