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How much of a percentage increase would you expect

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PART A: Bell Brothers has $3,000,000 in sales. Its fixed costs are estimated to be $100,000, and its variable costs are equal to fifty cents for every dollar of sales. The company has $1,000,000 in debt outstanding at a before-tax cost of 10 percent. If Bell Brothers' sales were to increase by 20 percent, how much of a percentage increase would you expect in the company's net income? Choose the correct choice.

a. 19.24%

b. 23.08%

c. 21.50%

d. 18.33%

e. 15.66%

PART B: Suppose you borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged? Choose the correct choice.

a. 8.57%

b. 28.00%

c. 14.00%

d. 16.28%

e. 21.21%

Reference no: EM132612669

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