Marshall's Has a $75,000 Line of Credit with Tabor Bank

question 103

Multiple Choice

Marshall's has a $75,000 line of credit with Tabor Bank. The line of credit calls for an interest rate of 8.5% and a compensating balance of 6%. The compensating balance is based on the total amount
Borrowed and will be held in an interest-free account. What is the effective annual interest rate if
The firm borrows $49,000 for one year?

• A) 8.28%
• B) 8.78%
• C) 9.04%
• D) 9.23%
• E) 9.31%

---

Definitions:

Equity Financing

Equity financing involves raising capital through the sale of shares in a company, thereby giving investors ownership interests in the company.

Financial Policies

Guidelines and rules that govern a company's financial decision-making process and its pursuit of financial objectives.

Growth Achievement

The measure of progress or success in reaching specific growth targets, often related to personal development, business expansion, or economic indicators.

Dividend Payout Ratio

A financial ratio that shows the proportion of earnings a company pays out to shareholders in the form of dividends.