bombeck inc. has the following transactions during august of the current year. aug. 1: opens an office as a financial advisor, i
1 answer:
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Answer:
5.925%
Explanation:
For computing the cost of debt, first we have to determine the YTM by using the Rate formula that is shown in the attachment
Given that,
Present value = $1,050
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 8% = $80
NPER = 20 year - 1 year = 19 year
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this,
1. The pretax cost of debt is 7.50%
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 7.50% × ( 1 - 0.21)
= 5.925%
Answer: Degree of Operating Leverage
A Tech = 2.75
Z Tech = 3
Explanation:
As defined in question itself,
Degree of Operating Leverage =
As here, it is provided that profit for both the companies are same amounting $4 million.
Although the fixed cost differ by $1 million.
A Tech Degree of operating Leverage = 1 + = 2.75
Z Tech Degree of Operating Leverage = 1 + = 3
This clearly demonstrates that A Tech will reach its break even faster than the Z Tech as the ratio of fixed cost to variable cost is lower in A tech in comparison to Z Tech.