Smith Enterprise Credit Line

question 104

Multiple Choice

Smith Enterprise Credit Line
Smith Enterprise has a 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%. The bank also requires a 5% compensating balance.
-What is the most that Smith can effectively borrow against the line without having to deposit additional funds with the bank?

• A) $5,000,000
• B) $4,255,374
• C) $4,586,408
• D) $4,761,905

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