1. The additional interest rate premium required to compensate the lender for the probability that a borrower will not be able to repay interest and principal on a loan is known as?
a. inflation premium
b. default risk premium
c. liquidity premium
d. maturity premium
e. investment risk premium
2. Solar Home Inc. is interested in estimating its sustainable sales growth rate. Last year revenues were $1 million, the net profit was $50,000, the investment in assets was $750,000, payables and accruals were $100,000, and equity at the end of the year was $450,000 (i.e., beginning of year equity of $400,000 plus retained profits of $50,000). The venture did not pay out any dividends and does not expect to pay dividends for the foreseeable future.
The sustainable sales growth rate for Solar is ________.
a. 12.5%
b. 11.1%
c. 10.0%
d. 7.1%
If Solar Home's sales are expected to grow at a 30 percent rate next year, the estimated additional funds needed next year using the AFN formula would be ______.
a. $300K
b. $130K
c. $65K
d. 0