Determine the effective cost of borrowing in dollars

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Reference no: EM132068710

1. Determine the effective cost of borrowing in dollars in each of the three years 2015, 2016, and 2017 and explain your calculations. On September 30, 2015, Ericson Company negotiated a 2-year, 1,000,000 dudek loan from a foreign bank at an interest rate of 2 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2017. Ericson prepares U.S.-dollar financial statements and has a December 31 year-end.

September 30, 2015 - $0.100

December 31, 2015 - 0.105

September 30, 2016 - 0.120

December 31, 2016 - 0.125

September 30, 2017 - 0.150

2. The CEO of Easy Home Sales Inc. would like to grow the company to $952,000 in sales for next year. The finance officer has compiled the data below for the current year. Assets and costs will grow proportionate to sales; debt and equity will not. The dividend payout ratio will be the same as current year. What is external financing needed?

Current Year DataSales $800,000

Costs 600,000

Tax rate 35%

Assets 2,000,000

Debt 800,000

Equity 1,200,000

Dividends 26,000

Reference no: EM132068710

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