The Jetson Co.has an $80,000 line of credit with a 12% interest rate and a 10% compensating balance requirement that is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $45,000 of cash for one year?

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To calculate the effective interest rate, consider the compensating balance requirement. The firm needs $45,000, but due to the 10% compensating balance, they must borrow more. The total amount borrowed is $45,000 / (1 - 0.10) = $50,000. The interest on $50,000 at 12% is $6,000. The effective interest rate is $6,000 / $45,000 = 13.33%.