The Kangal Enterprise needs to increase its working capital by Rs 3.5 million for which it will borrow from the Banque de Fraude at 18% per year, for one year. Banque de Fraude is generously extending Kangal Enterprise a revolving credit of Rs 4.5 million, with a compensating balance of only 15.5% and commitment fees rate of 3.5%. Required [a] Calculate the interest on discount & collection basis [b] Calculate the overall cost of the annual revolving credit agreement [c] Approximately how much should Kangal Enterprise utilize of the precious 4.5 million revolving credit agreement, to fulfill its requirement of raising working capital by about 3.5 million and at what overall cost?

The Kangal Enterprise needs to increase its working capital by Rs 3.5 million for which it will borrow from the Banque de Fraude at 18% per year, for one year. Banque de Fraude is generously extending Kangal Enterprise a revolving credit of Rs 4.5 million, with a compensating balance of only 15.5% and commitment fees rate of 3.5%. Required [a] Calculate the interest on discount & collection basis [b] Calculate the overall cost of the annual revolving credit agreement [c] Approximately how much should Kangal Enterprise utilize of the precious 4.5 million revolving credit agreement, to fulfill its requirement of raising working capital by about 3.5 million and at what overall cost?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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