Scotch inc. arranged a $7,000,000 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 portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. the prime rate was 8% 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? show your calculations, if any, and explain your answer.

$575,000

Explanation:

Data provided:

The total amount for the credit agreement = $7,000,000

The amount borrowed by the firm = $6,000,000

The annual commitment fee for the unused balance = 0.5%

Prime rate of interest = 8%

Interest paid above the prime rate = 1.5%

Now,

the unused amount = $7,000,000 - $6,000,000 = $1,000,000

The amount of commitment fees paid

= total unused amount × Annual commitment fees

= $1,000,000 × 0.005

= $5000

Total interest paid on the borrowed amount

= Amount borrowed × (prime rate + additional rate)

= $6,000,000 × ( 0.08 + 0.015)

= $6,000,000 × 0.095

= $570,000

Hence,

the total dollar annual cost of the revolver

=  interest paid on the borrowed amount + amount of commitment fees paid

= $570,000 + $5000

= $575,000

all of them make sense but, i would have to say ask someone who has been there/or lives there, and/or read recent newspapers from that city.

hope this !

answer; post closing trial balance;