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CS Executive · Corporate Accounting and Financial Management · Working Capital Management

A company has a bank cash credit limit of Rs 50 lakh at 12% p.a. on the amount actually utilised, with a commitment charge of 1% p.a. on the unused portion. Over a year it uses an average of Rs 30 lakh. What is the total annual financing cost?

The total annual cost is Rs 3.80 lakh. Interest on the Rs 30 lakh used at 12% is Rs 3.60 lakh, and the commitment charge at 1% on the unused Rs 20 lakh is Rs 0.20 lakh. Adding both gives Rs 3.80 lakh.

  1. ARs 3.80 lakhCorrect
  2. BRs 3.60 lakh
  3. CRs 6.00 lakh
  4. DRs 4.10 lakh

Explanation

Interest = 12% x 30 lakh = Rs 3.60 lakh. Unused = 50 - 30 = Rs 20 lakh; commitment charge = 1% x 20 lakh = Rs 0.20 lakh. Total = Rs 3.80 lakh. Rs 3.60 lakh omits the commitment charge.

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