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.
20.What is the most that Smith can effectively borrow against the line without having to deposit additional funds with the bank?
21.If Smith needs to borrow $3,250,000, what is the effective borrowing rate if the LIBOR equals 6.3%?
Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an 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%. Assume that the LIBOR is 6.3%
22.What is Smith’s effective borrowing rate?
23.Refer to Smith Enterprise Credit line (w/o comp). If you only borrowed $2,000,000 against the line, what would be your effective borrowing rate?
24.Refer to Smith Enterprise Credit line (w/o comp). What is the change in your EBR if you only borrow $2,000,000 instead of $3,250,000?
a.increases by .44%
b.decreases by .44%
c.does not change
d.increases by .78%
25.Refer to Smith Enterprise Credit line (w/o comp). What would be the effective borrowing rate if you exhausted your line of credit?
26.Most money market mutual funds set their net asset value at a fixed ____ per share.
27.The cash manager should seek to
a.maximize disbursement float and maximize collection float.
b.minimize disbursement float and minimize collection float.
c.maximize disbursement float and minimize collection float.
d.minimize disbursement float and maximize collection float.
28.Which of the following has the greatest potential to be the longest?
29.A major retail firm like Walmart or Target would most likely not use
a.point of sale information systems
b.a cash concentration bank
d.any of the above
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