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