What effect would an increase in the prime rate

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Reference no: EM131117546

Matthews Manufacturing is negotiating a 1-year credit line with its bank, Worldwide Bank. The amount of the credit line is $6.5 million with an interest rate set at 2.5% above the prime rate. A commitment fee of 0.5% (50 basis points) will be charged on the unused portion of the line. No compensating balances are required, and the loan is made on a 365-day basis.

If the prime rate is assumed to be constant at 4.25% during the term of the loan and if Matthews's average loan outstanding during the year is $4 million, then calculate the firm's effective borrowing rate. Round your answer to two decimal places.

_____%

What effect would an increase in the prime rate to 4.75% for the entire year have on Matthews's EBR calculated in part (a)? Round your answer to two decimal places.

Change is ______%

What effect would a decrease in Matthews's average loan outstanding during the year to $3 million have on the EBR calculated in part (a)? Round your answer to two decimal places.

Change is ______%

Reference no: EM131117546

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