Masipag Corporation has a line of credit with Bank X for P 10,000,000 for the year 2016. For any amount borrowed, the bank requires the borrower a compensating balance of 5%. Assuming the company needed P 5,000,000 cash on June 30, 2016, and availed of the credit line for 12% interest payable on December 31, 2016; and assuming further that the company has no existing deposit with the bank:

• a) How much should the company borrow to have net cash proceeds of P 5,000,000?
• b) How much is the compensating balance?
• c) What is the effective interest rate from this transaction?

Answer rating: 100% (QA)

1 The Gross that should be borrwed is Net cash proceedes needed1... View the full answer