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Chapter 3: 25BP_d (page 252)

Harper Engine Company needs \(631,000 to take a cash discount of 2.5/20, net 75. A banker will lend the money for 55 days at an interest cost of \)13,300.

d. If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $631,000?

Short Answer

Expert verified

The firm needs to borrow $701,111.

Step by step solution

01

Information provided in the question

Loan amount = $631,000

Loan term = 55 days

Interest = $13,300

Compensating balance = 10%

02

Calculation of the funds the firm is required to borrow

The firm is required to borrow $701,111.

Fundsrequired=Principal1-Compensatingbalancerate=$631,0001-0.1=$701,111

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