A wholesale company needs to borrow $600,000 to finance inventory for the upcoming seasonal rush. Royalty Bank has offered tofinance the inventory at 8% provided that the company keeps a compensating balance in its operating account of 10%.A) How much must the distributor borrow to end up with the $600,000?B) What is the effective rate of interest on this borrowing? [[Show detailed calculation with a formula where applicable]

A borrower gets an interest quote for a borrowing, however it needs to maintain a compensating…

Answered: A wholesale company needs to borrow…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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