You need to borrow $10,000,000 on your line of credit to cover increased working capital expense...

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You need to borrow $10,000,000 on your line of credit to cover increased working capital expense due to sales growth. Bank A is willing to lend to you at 5.25% with 10% compensating balances. Bank B will lend at 6.00 with 5% compensating balances. Bank C will lend with no compensating balances but the interest rate is 6.45%. a) How much will you have to borrow from each bank to have the amount you need? b) What is the effective interest rate for each loan? c) Which loan would you choose? Explain your answer. You need to borrow $10,000,000 on your line of credit to cover increased working capital expense due to sales growth. Bank A is willing to lend to you at 5.25% with 10% compensating balances. Bank B will lend at 6.00 with 5% compensating balances. Bank C will lend with no compensating balances but the interest rate is 6.45%. a) How much will you have to borrow from each bank to have the amount you need? b) What is the effective interest rate for each loan? c) Which loan would you choose? Explain your answer.

Answer rating: 100% (QA)

a To calculate the amount you need to borrow from each bank we need to consider the compensating balances and the total loan amount required Bank A Lo... View the full answer