Pokhara Food Corp. is negotiating with the Citizen's Bank for a Rs. 500,000 A one year loan Citizen has offered the following three alternatives :…
BBS Fundamentals of Corporate Finance · 2082 · Solved Question with Answer
Pokhara Food Corp. is negotiating with the Citizen's Bank for a Rs. 500,000 A one year loan Citizen has offered the following three alternatives :
Alternative 1: A 15 percent interest rate no compensating balance, and interest due at the end of the year
Alternative 2: A 13 percent interest rate , a 20 percent compensating balance and interest rate due at the end of the year
Alternative 3: An 11 percent interest rate , 15 percent compensating balance and the loan discounted
a. If Pokhara food wishes to minimize the effective interest rate, which alternative will it choose?
b. Describe the other qualitative aspect that should be considered while choosing the bank