2B5DD FRAME INDUSTRIES HAS ARRANGED A REVOLVING LINE OF CREDIT FOR TH...

185.

CSO: 2B5f

LOS: 2B5dd

Frame Industries has arranged a revolving line of credit for the upcoming year with a

commercial bank. The arrangement is for $20 million, with interest payable monthly on

the amount utilized at the bank’s prime rate and an annual commitment fee of one-half of

1 percent, computed and payable monthly on the unused portion of the line. Frame

estimates that the prime rate for the upcoming year will be 8%, and expects the following

average amount to be borrowed by quarter.

Quarter

Amount Borrowed

First

$10,000,000

Second

20,000,000

Third

20,000,000

Fourth

5,000,000

How much will Frame pay to the bank next year in interest and fees?

a.

$1,118,750.

b.

$1,131,250.

c.

$1,168,750.

d.

$1,200,000.