Calculating Fees on a Loan Commitment You Have Approached Your

question 70

Multiple Choice

Calculating Fees on a Loan Commitment You have approached your local bank for a start-up loan commitment for $200,000 needed to open a computer repair store.You have requested that the term of the loan be one year.Your bank has offered you the following terms: size of loan commitment = $200,000,term = one year,up-front fee = 50 basis points,back-end fee = 80 basis points.If you take down 95 percent of the total loan commitment,calculate the total fees you have paid on this loan commitment.

• A)$1,000
• B)$1,080
• C)$1,600
• D)$2,520

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Definitions:

Gross Profit

The amount by which sales revenue exceeds the cost of goods sold, prior to subtracting expenses such as overheads, payroll taxes, and interest.

Operating Expenses

Costs related to the day-to-day operations of a business, excluding the cost of goods sold.

Net Income

Profit calculated after deducting all operating expenses, interest, taxes, and any other charges from total revenues.

Service Firm

An enterprise offering non-physical products or services to its customers, as opposed to tangible items.