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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

Sundaram Infra Ltd obtains a performance bank guarantee of Rs 2,00,000 for one year from its bank at a commission of 1.5% per annum, charged on the guarantee amount and paid upfront. It also pays a one-time processing fee of Rs 1,000. What is the total cost to Sundaram for the year, ignoring tax and GST?

The total cost is Rs 4,000. The annual commission is 1.5% of Rs 2,00,000, which is Rs 3,000, and the one-time processing fee of Rs 1,000 is added to it.

  1. ARs 3,000
  2. BRs 4,000Correct
  3. CRs 4,500
  4. DRs 1,000

Explanation

Commission = 1.5% x 2,00,000 = Rs 3,000. Adding the processing fee of Rs 1,000 gives Rs 4,000. Rs 3,000 omits the fee; Rs 4,500 wrongly adds 1.5% of the amount again on a different base.

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