Question

Adair Credit, Inc. has $53.0 million in consumer loans with an average interest rate of 11.0%. The company has $48.0 million in home equity loans with an average interest rate of 7.0%, and owns $6.0 million in corporate securities with an average interest rate of 5%. Next year, consumer loans are estimated to increase to $58.0 million because of a rate decrease to 9.0%, while home equity loans are estimated to increase to $50.0 million at an average interest rate of 5.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 15% and the average interest rate is estimated to be 8.0%. What is Adair's estimated change in revenues next year? Multiple Choice 0 $1,112,000 decrease. O 0 $1,434,722 increase 0 $112.000 increase 0 $.434 222 cecrease

Answer 1

Adair Credit, Inc. Change in revenue is computed using the equation given below: Change in revenue = {(Consumer loan x Interest rate) + (Home equity x Rate) + (Corporate security x rate)} - {(Consumer loan x Interest rate) + (Home equity x Rate) + (Corporate security x rate)} = {($53,000,000 x 11%) +($48,000,000 x 7%) + ($6,000,000 x 5%)} - {($58,000,000 x 9%) + ($50,000,000 > 5.5%) + ($6,000,000 x (1 - 15%) 8%]} = $1,112,000 Hence, the revenue is decreased by $1,112,000.