The bank has increased the interest rate on MME's existing loan from 6.5% to 8% - Edexcel - GCSE Business - Question 4 - 2018 - Paper 1
Question 4
The bank has increased the interest rate on MME's existing loan from 6.5% to 8%.
Identify two effects of this change on MME.
Select two answers.
A. Decreased net ... show full transcript
Worked Solution & Example Answer:The bank has increased the interest rate on MME's existing loan from 6.5% to 8% - Edexcel - GCSE Business - Question 4 - 2018 - Paper 1
Step 1
A. Decreased net cash flow
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Answer
An increase in the interest rate directly affects MME's cash flow. The higher interest payments will result in lower net cash flow, as more cash will be allocated towards servicing the debt.
Step 2
D. Increased cash outflows
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Answer
With the interest rate rising from 6.5% to 8%, MME will experience increased cash outflows. This is because the company will need to pay more towards interest, leading to an overall increase in cash outflows related to loan repayments.
