Pierce Control Systems case 1. Based on the 10 percent compensating balance requirement, how much would Pierce Control Systems have to borrow to acquire $10 million in needed funds?
Solution: Compensating balance = 10% → 0.10 Amount needed = $10,000, 000
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Check: Loan = $11,111,111 Compensating balance = 10% → 0.10 = loan ∙ 0.10 = $11,111,111 ∙ 0.10 = $1,111,111
Available funds = Loan – Compensating Balance Available funds = $11,111,111 - $1,111,111 Available funds = [pic]
Answer: Pierce Control Systems would have to borrow $11,111,111 in order to acquire $10 million in needed funds with a 10 percent compensating balance.
2. Would the cost of the bank loan
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9% |
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|6| |
|1|9% |
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|1|4% |
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Solution:
|Y|Projected Prime Interest Rate |Future
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