1. Suppose your firm is seeking a 3-year amortizing $200000 loan with annual pa

1. Suppose your firm is seeking a 3-year amortizing $200000 loan with annual payments and your bank is offering you the choice between a
$207000 loan with a $7000 compensating balance and a $200000 loan without a compensating balance. If the interest rate on the $200000 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 $500000 and requires $10000 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 $40000 at the end of year 3 what is the after tax salvage value?