A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,100, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 7,500 Debt ratio 40% Tax rate 40% BEP ratio 13.31% EBT 600 Sales 10,000 These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company’s cost of debt?
A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,100, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 7,500 Debt ratio 40% Tax rate 40% BEP ratio 13.31% EBT 600 Sales 10,000 These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company’s cost of debt?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,100, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied:
|
Total assets |
7,500 |
|
Debt ratio |
40% |
|
Tax rate |
40% |
|
BEP ratio |
13.31% |
|
EBT |
600 |
|
Sales |
10,000 |
These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the
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