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ICE Princess25 [194]
2 years ago
10

Different loan rates. Winthrop Enterprises is a holding company​ (a firm that owns all or most of some other​ companies' outstan

ding​ stock). Winthrop has four subsidiaries. Each subsidiary borrows capital from the parent company for projects. Ervin Company is successful with its projects 93​% of the​ time, Morten Company 76​% of the​ time, Richmond Company 95 % of the​ time, and Garfield Company 82​% of the time. What loan rates should Winthrop Enterprises charge each subsidiary for​ loans?What loan rate should Winthrop Enterprises charge Ervin Company for​ loans?
Business
1 answer:
katovenus [111]2 years ago
5 0

Answer:

7.52689%

Explanation:

Ervin Company:To break even with an 93% success rate, Ervin will need to recoup

$1/0.93=$1.0752689.

Hence:

Winthrop should charge a return greater than ($1.0752689/$1.00) -1

=($1.0752689)-1

=0.0752689×100

=7.52689%

Therefore th eloan rate Winthrop Enterprises should charge Ervin Company for​ loans will be 7.52689%

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