Consolidated Corporation requires C$50 million in funds.The banks has offered them a discounted loan at 8% with a compensating balance of 15%.How much must they borrow in order to net this amount?

Question

Quizplus · Accepted Answer

To net C$50 million with a compensating balance of 15%, Consolidated Corporation must borrow an amount such that after deducting the 15% compensating balance and the 8% discount, they are left with C$50 million. The formula to calculate the amount to borrow is: Amount to Borrow = Desired Funds / (1 - Compensating Balance Percentage - Discount Rate). Plugging in the values: Amount to Borrow = 50,000,000 / (1 - 0.15 - 0.08) = 50,000,000 / 0.77 = C$64,935,165.

Consolidated Corporation Requires C$50 Million in Funds