Tangshan Mining Borrowed $100,000 for One Year Under a Revolving

question 127

Multiple Choice

Tangshan Mining borrowed $100,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $200,000. The revolving credit agreement had a stated interest rate of 7.5 percent and charged the firm a 1 percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan is ________.

• A) 7.5%
• B) 8.0%
• C) 8.5%
• D) 9.0%

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Definitions:

Capacity

It is the maximum level of output that a company can sustain to produce in a given period under normal conditions.

Job-Order Costing

A costing methodology that calculates the cost of individual jobs or batches, useful in manufacturing or service industries where jobs are distinct and have varying requirements.

Automated Shaper

A machine tool that uses computer control to shape or cut materials with precision, often used in manufacturing.

Gross Margin

The difference between sales revenue and the cost of goods sold before deduction of selling, general, and administrative expenses.