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    Effective annual rate, EBIT and net income

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    Q1
    You have just borrowed RM20,000 to buy a new car. The loan agreement requires for 60 monthly payments of RM444.89 each to begin one month from today. If the interest is compounded monthly, what is the effective annual rate on this loan?

    Q2
    Era Baru Bhd. recently reported net income of RM385,000. The tax rate is 40 percent. The company's interest expense was RM200,000. What would be the company's net income if the company is able to double its operating income (EBIT), assuming that the company's tax rate and interest expense remain unchanged?

    Q3
    Hebat Housing Corporation Bhd. has forecast the following numbers for this coming year:
    Sales RM1,000,000
    Cost of Goods Sold 600,000
    Interest Expense 100,000
    Net Income 180,000

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    Solution Preview

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    Q1 Effective Annual Rate on a Car Loan
    You have just borrowed RM20,000 to buy a new car. The loan agreement requires for 60 monthly payments of RM444.89 each to begin one month from today. If the interest is compounded monthly, what is the effective annual rate on this loan?
    The Effective Annual Rate (EAR) is the actual interest rate paid on a loan, whereas the nominal annual percentage rate (APR) is the quoted rate of interest. The effective annual rate equals the nominal annual rate when compounding occurs annually. If compounding occurs more frequently, then the effective annual rate is greater than the nominal rate.
    In this problem, you need first to find the quoted annual interest rate for the loan. Using a financial calculator, input N ...

    Solution Summary

    This solution explains and computes three problems. First, the effective annual rate on a car loan with monthly payments is computed. Second, the partial income statement is constructed for Era Baru Bhd, based on given information. Third, the partial income statement is constructed for Hebat Housing Corporation.

    $2.19