Calculating Fees on a Loan Commitment During the Last Year

question 97

Multiple Choice

Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund working capital for your business.The total line available was $2,500,000,of which you took down $1,000,000.It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees.You have misplaced the paperwork that listed the terms of the commitment,but you know you paid total fees (this does not include any interest paid to borrow the $1,000,000) of $15,000 on this loan commitment.You remember that the back-end fee was 30 basis points.Calculate the front-end fee on this loan commitment.

• A)30 basis points
• B)42 basis points
• C)60 basis points
• D)70 basis points

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Definitions:

Contracts

legally binding agreements between two or more parties that outline terms and conditions of a specific transaction or relationship.

Marginal Cost

The cost incurred to produce one additional unit of a good or service, critical for pricing and production decisions.

R&D

Research and Development, a business or governmental activity aimed at discovering new knowledge and its application.

Holdup

A situation in business where one party opportunistically takes advantage of another party because of preexisting commitments.