Smithfield's Has a Line of Credit with a Local Bank

question 77

Multiple Choice

Smithfield's has a line of credit with a local bank of $75,000.The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed.What is the effective interest rate if the firm needs $58,000 for 1 year to finance a fixed asset purchase?

• A)8)55%
• B)6)34%
• C)7)13%
• D)7)38%
• E)6)19%

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Definitions:

Dollar Sales

The total revenue generated from the sale of goods or services, measured in dollars.

Fixed-price Policy

A pricing strategy where a product or service is sold at a specific price that does not change in response to market fluctuations or customer negotiations.

No Haggle

A pricing strategy where the seller sets a fixed price for a product or service, eliminating the need for negotiation.

CarMax Dealership

A chain of used-car dealerships in the United States known for its no-haggle pricing and comprehensive vehicle inspection process.