The firms commercial construction business

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Reference no: EM131300372

The R. Morin Construction Company needs to borrow $90,000 to help finance the cost of a new $126,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in 1 year, and the firm is considering the following alternatives for financing its purchase: The firm's bank has agreed to lend the $90,000 at a rate of 13 percent. Interest would be discounted, and a 15 percent compensating balance would be required. However, the compensating - balance requirement would not be binding on R. Morin because the firm normally maintains a minimum demand deposit (checking account) balance of $22, 500 in the bank. The equipment dealer has agreed to finance the equipment with a 1 - year loan. The $90,000 loan would require payment of principal and interest totaling $104, 436.

Reference no: EM131300372

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