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Chapter 3: 13BP_a (page 250)

Digital Access Inc. needs \(400,000 in funds for a project.

a. With a compensating balance requirement of 20 percent, how much will the firm need to borrow?

b. Given your answer to part a and a stated interest rate of 9 percent on the total amount borrowed, what is the effective rate on the \)400,000 actually being used?

Short Answer

Expert verified

The firm needs to borrow is $500,000.

Step by step solution

01

Information provided in the question

Amount needed = $400,000

Compensating balance = 20%

02

Calculation of funds required

The firm needs to borrow is $500,000.

Amounttobeborrowed=Amountneeded1-Compensatingbalance=$400,0001-20%=$400,0000.80=$500,000

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