The Babco Co

question 3

Multiple Choice

The Babco Co.has a $200,000 line of credit with an 8% interest rate and a 10% compensating balance requirement that is based on the total amount borrowed.What is the effective interest rate if the firm uses this source of funding to purchase a $117,000 piece of equipment? The company plans on repaying the loan in a lump sum at the end of one year.

• A)7.20%
• B)7.27%
• C)8.08%
• D)8.80%
• E)8.89%

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Definitions:

Collective Agreement

A written contract negotiated between an employer and a union representing employees, detailing wages, hours, and conditions of work.

Organizing Process

The method of structuring or arranging resources and operations within an organization to achieve its goals and objectives efficiently.

Arbitration

A process where a neutral third party makes a binding decision to resolve a dispute, without going to court.

Neutral Third Party

An impartial entity involved in conflict resolution or negotiation processes, who has no stake in the outcome and is unbiased.