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%.