The Falkland Cheese Company Has a Variable Rate Loan with an Interest

question 269

Multiple Choice

The Falkland Cheese Company has a variable rate loan with an interest rate collar. The company is assured that the interest rate will:

• A) Not increase above a stated rate and will decrease in direct proportion to changes in the discount rate.
• B) Both increase and decrease in direct proportion to changes in the discount rate.
• C) Increase in direct proportion to changes in the discount rate but remain above a stated rate.
• D) Not increase above a stated rate nor fall below a stated rate.
• E) Never change from the initial rate.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow using its generated profits without resorting to external financing.

Capital Intensity Ratio

A metric that measures the amount of capital needed per unit of output, indicating the extent to which a firm or economy relies on capital to produce goods and services.

Retention Ratio

The proportion of earnings that is not distributed as dividends to shareholders, but is retained by the company for reinvestment.

Cash Dividends

Distributions of profits from a corporation to its shareholders as payments.