## (Answered) salvage value and compensating balance

1. Suppose your firm is seeking a 3-year, amortizing \$200,000 loan with annual payments and your bank is offering you the choice between a \$207,000 loan with a \$7,000 compensating balance and a \$200,000 loan without a compensating balance. If the interest rate on the \$200,000 loan is 12 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it? 2. Your firm needs a machine which costs \$500,000, and requires \$10,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 15%. If this machine can be sold for \$40,000 at the end of year 3, what is the after tax salvage value?
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salvage value and compensating balance

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This question was answered on: Dec 18, 2020

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