Compensating balances and effective annual rates Lincoln Industries has a line of credit at Bank Two that requires it to pay 14% interest on its borrowing and to maintain a compensating balance equal to 10% of the amount borrowed. The firm has borrowed $860,000 during the year under the agreement. Calculate the effective annual rate on the firm's borrowing in each of the following circumstances: a. The firm normally maintains no deposit balance at Bank Two. b. The firm normally maintains $50,000 in deposit balance at Bank Two. c. The firm normally maintains $160,000 deposit balance at Bank Two. d. Compare, contrast, and discuss your findings in parts a, b, and c. Early payment discount versus loan Joanne Germano works in an accounts payable department of a major retailer. She has attempted to convince her boss to take the discount on the 1/15 net 90 credit terms most suppliers offer, but her boss argues that giving up the 1% discount is less costly than a short-term loan at 8%. Prove to whoever is wrong that the other is correct. (Note: Assume a 365-day year.) The cost of giving up the cash discount is %. (Round to two decimal places.)