Determine the effect of each of the following conditions on the annual financing cost for a line

Question:

Determine the effect of each of the following conditions on the annual financing cost for a arrangement (assuming that all other factors remain constant):
a. The bank raises the prime rate.
b. The bank lowers its compensating balance requirements.
c. The firm’s average bank balance increases as the result of its instituting more stringent credit and collection policies.

Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...