ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $286,918 deficit and a 40% chance for no deficit at all. The line of credit charges 0.68% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. 

What will the expected cost of establishing a line of credit be?

Answer rating: 100% (QA)

To calculate the expected cost of establishing a line of credit we need to first calculate the expec... View the full answer