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Suppose that Dynamic Sofa has a line of credit with a stated interest of 10% and a compensating balance of 25%. The compensatin balance earns
Suppose that Dynamic Sofa has a line of credit with a stated interest of 10% and a compensating balance of 25%. The compensatin balance earns no interest.
a) If the firm needs $10,000, how much will it need to borrow?
b)Suppose that Dynamic's bank offers to forget about the compensating balance requirement if the firm pays interest at a rate of 12%. Should the firm accept this offer? Why or why not?
c) Redo part (b) if the compensating balance pays interest of 4%.
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