9. A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 8,000 Debt ratio 45% Tax rate 35% BEP ratio 13.31% EBT 600 Sales 15,000 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? (Hint: Work only with old data.)
9. A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 8,000 Debt ratio 45% Tax rate 35% BEP ratio 13.31% EBT 600 Sales 15,000 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? (Hint: Work only with old data.)
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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19. A company has just been taken over by new management that believes it can raise earnings before
taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Prior
to the change, the following data applied:
Total assets 8,000
Debt ratio 45%
Tax rate 35%
BEP ratio 13.31%
EBT 600
Sales 15,000
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? (Hint: Work only
with old data.)
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