Author Question: Brown Inc needs to borrow 250,000 for the next 6 months. The company has a line of credit with a ... (Read 60 times)

HudsonKB16 · **on:** Jul 10, 2018

Brown Inc needs to borrow 250,000 for the next 6 months. The company has a line of credit with a
bank that allows the company to borrow funds with an 8 interest rate subject to a 20 of loan
compensating balance.

Currently, Brown Inc has no funds on deposit with the bank and will need
the loan to cover the compensating balance as well as their other financing needs. What is the
annual percentage rate for this financing assuming discounted interest?
A) 14.29 B) 11.67 C) 10.53 D) 12.98

Question 2

Cherry Auto Sales just opened and does not expect to pay a dividend during its first year. At the end of its second year, Cherry's owners expect to pay a 2.00 dividend and plan to increase it 7 annually.

If the required return is 20, what should Cherry's stock price be?
A) 11.42
B) 10.92
C) 13.06
D) 12.82
E) 15.48