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Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand

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Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds as a discount loan with an annual rate of 8%. Automotive Accessories maintains no deposit balances in either bank, and repayment will be a single lump sum at maturity.

a. What is the effective annual rate of interest on each loan?
b. Suggest ways that Automotive Accessories can reduce the interest rates on these loans.

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a For Bank Helping Hand s loan First calculate the amount of compensating balance required Compensat…View the full answer


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Related Book For  answer-question
Principles Of Managerial Finance

Principles Of Managerial Finance

ISBN: 9781292018201

14th Global Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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Question Details
Chapter # 16- Current Liabilities Management
Section: Problems
Problem: 13
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Question Posted: September 16, 2023 01:03:31
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