Friedman Roses, Inc. needs $65,000 in funds for expansion. With a compensating balance requirement of 20%, how much will the firm need to borrow?

Question

Quizplus · Accepted Answer

To calculate how much the firm will need to borrow, we need to add the required compensating balance to the amount needed for expansion. 
Compensating balance = 20% of $65,000 = $13,000 
Amount needed for expansion + compensating balance = $65,000 + $13,000 = $78,000 
Therefore, the firm will need to borrow $78,000 - $13,000 = $65,000 (rounded to the nearest thousand), which is option B.