what is the effective interest rate for cash balance
Once the LOC is in place, the clothing store needs to manage cash flow so the business can minimize the interest expense paid on the LOC borrowings. Assume, for example, the interest rate on the LOC is an annual rate of 6% and the store starts the month with a $20,000 cash balance. The store estimates sales for the month to be $50,000, and $40,000 in inventory needs to be purchased to meet customer demand.