Cullumber needs to borrow $4 million for an upgrade to its headquarters and manufacturing facility. Management has decided to borrow using a five-year term loan from its existing commercial bank. The prime rate is 4 percent, and Cullumber’s current rating is prime + 2.57 percent. The yield on a five-year U.S. Treasury note is 1.91 percent, and the three-month U.S. Treasury bill rate is 0.12 percent. What is the estimated loan rate for the five-year bank loan?
Cullumber needs to borrow $4 million for an upgrade to its headquarters and manufacturing facility. Management has decided to borrow using a five-year term loan from its existing commercial bank. The prime rate is 4 percent, and Cullumber’s current rating is prime + 2.57 percent. The yield on a five-year U.S. Treasury note is 1.91 percent, and the three-month U.S. Treasury bill rate is 0.12 percent. What is the estimated loan rate for the five-year bank loan?
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 11P
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Cullumber needs to borrow $4 million for an upgrade to its headquarters and manufacturing facility. Management has decided to borrow using a five-year term loan from its existing commercial bank. The prime rate is 4 percent, and Cullumber’s current rating is prime + 2.57 percent. The yield on a five-year U.S. Treasury note is 1.91 percent, and the three-month U.S. Treasury bill rate is 0.12 percent. What is the estimated loan rate for the five-year bank loan?
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