Question

calculate the decrease in interest expense that would occur if the working capital requirement dropped from $10,000 to $6,000. assume an annual borrowing rate of 5%. $200 $300 $400 $500

Explanation:

Step1: Find the change in working capital

The initial working capital is $10,000 and the new working capital is $6,000. The change in working capital is $10,000 - $6,000 = $4,000.

Step2: Calculate the decrease in interest expense

The annual borrowing rate is 5% or 0.05. The decrease in interest expense is the change in working capital multiplied by the borrowing rate. So, $4,000 * 0.05 = $200.

Answer:

$200