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Homework answers / question archive / Comprehensive Example Square Textiles needs some funding for a particular project
Comprehensive Example Square Textiles needs some funding for a particular project. It has identified the following three sources from which the money can be raised: Source 1: A loan of Tk. 50,00,000 taken at floating interest rate set at Prime rate + 2%. The maturity of the loan is six months. The prime rate for the first 3 months is 7% and it is 8% for the next 3 months. The processing fee is 1% of the loan amount to be deducted in advance. Source 2: A line of credit for 60,00,000 with a compensating balance requirement of 10,00,000. The interest rate is 10% and maturity is six months. There is no processing charge. Source 3: Revolving line of credit of Tk 60,00,000 at 11% interest rate for 6 months. Square textiles intends to use only Tk. 50 lac. There is a commitment fee of 2% and a processing charge of 1%. These are to be deducted in advance. Q) Evaluate the alternative sources of fund and recommend which source Square textiles should select.
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