Inland Oil Arranged a $10,000,000 Revolving Credit Agreement with a Group

question 82

Multiple Choice

Inland Oil arranged a $10,000,000 revolving credit agreement with a group of small banks. The firm paid an annual commitment fee of one-half of one percent of the unused balance of the loan commitment. On the used portion of the loan, Inland paid 1.5 percent above prime for the funds actually borrowed on an annual, simple interest basis. The prime rate was at 9 percent for the year. If Inland borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar cost of the loan agreement for one year?

• A) $560,000
• B) $650,000
• C) $540,000
• D) $900,000
• E) $675,000

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Definitions:

Shares Outstanding

The total number of shares of a company that have been issued and are currently held by investors.

Stated Value

The nominal value assigned by a corporation to its issued shares, which might not reflect the market value but is used for internal accounting.

Paid-In Capital

The sum of money contributed by investors through the issuance of common or preferred stocks, counting both the share's nominal value and any excess over that nominal value.

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders but not retired, held in the company's treasury.