Smith Enterprise Credit Line (W/o Comp)

question 60

Multiple Choice

Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. Assume that the LIBOR is 6.3%

-Refer to Smith Enterprise Credit line (w/o comp) .What would be the effective borrowing rate if you exhausted your line of credit?

• A) 8.04%
• B) 7.80%
• C) 8.48%
• D) 8.21%

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Definitions:

Debt and Equity

Debt and Equity are the two primary ways companies finance their activities, with debt referring to borrowed money to be repaid and equity representing ownership interests in the company.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Current Liabilities

Obligations or debts a company must pay within a year or within its operating cycle if longer than a year.

Company Finance

Refers to the financial activities related to running a company, focusing on maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies.