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Friedman Roses Inc. needs $81,000 in funds for expansion with a compensating balance requirement of 21%, how much will the firm need to borrow?

a. $102,532
b. $21,532
c. $81,000
d. 102,582

User Indie
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1 Answer

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Final answer:

Friedman Roses Inc. needs to borrow $102,532 (option a) to satisfy the requirement of having $81,000 in funds, while maintaining a 21% compensating balance.

Step-by-step explanation:

The question asks us to calculate the total amount of money that Friedman Roses Inc. needs to borrow, taking into account a compensating balance requirement of 21%. This can be done by dividing the needed funds by the proportion of the funds that can actually be used after satisfying the compensating balance requirement.

Here is how the calculation looks:

Total Funds Needed / (1 - Compensating Balance Requirement) = Total Amount to Borrow

In this case:

$81,000 / (1 - 0.21) = $81,000 / 0.79 = $102,531.65

Rounded to the nearest dollar, Friedman Roses Inc. will need to borrow $102,532, which makes the correct answer as option (a) $102,532.

User Marw
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