Question

Tripp Corporation is planning to borrow $800,000 from its bank to pay one of its suppliers. The bank requires a compensating balance of 10%. Since Tripp currently holds no funds at the lending bank, it has borrowed enough to cover for the compensating balance as well. The amount that Tripp will pay its supplier is:​

Answer 1

$720,000

Step-by-step explanation:

Data provided in the question:

Amount Tripp Corporation is planning to borrow = $800,000

Compensating balance required by the bank = 10%

Now,

Since out of the borrowed amount 10% is Compensating balance required by the bank

Therefore only 90% of the balance is available for the Tripp corporation to pay one of its suppliers

Thus,

Amount Tripp will pay its supplier will be

= 90% of the Amount Tripp Corporation is planning to borrow

= 0.90 × $800,000

= $720,000