Would It Be Worth It to Incur a Compensating Balance

question 47

Multiple Choice

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year, pure discount loan of $300,000?

• A) yes if the interest rate is less than 13.64%
• B) no if the interest rate is less than 13.64%
• C) yes if the interest rate is more than 1.5%
• D) not enough information is given to determine

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Definitions:

Negative Cash Flow

A situation where a business or individual's outgoing cash exceeds the incoming cash during a specific period, indicating potential financial trouble.

Straight-Line Depreciation

A procedure for breaking down the cost of a tangible asset over its period of operation in equal annual installments.

Mutually Exclusive

Situations or events that cannot occur at the same time, requiring a choice to be made.