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Anuta_ua [19.1K]
3 years ago
14

Assume a company's Income Statement for Year 12 is as follows Year 12 in 000s Income Statement Data Net Revenues from Footwear S

ales Cost of Pairs Sold Warehouse Expenses Marketing Expenses Administrative Expenses Operating Profit (Loss) Interest Income (Expense) Pre-tax Profit (Loss) Income Taxes Net Profit (Loss) $580,000 350,000 45,000 90,000 15,000 80,000 (20,000) 60,000 18,000 $42.000 Based on the above income statement data and the formula for calculating the interest coverage ratio presented in the Help section for p. 5 of the Footwear Industry Report, the company's interest coverage ratio is
A. 29.0
B. 2.20
C. 4.00
D. 3.00
E. 2.10
Business
1 answer:
eimsori [14]3 years ago
6 0

Answer:

C. 4.00

Explanation:

The interest coverage ratio is the same as times interest earned.

It is a the financial ratio that shows how many times over the income or earnings before interest and tax can be used to pay the interest payable in the same period.

Hence, Interest coverage

= Earnings before interest and taxes (EBIT) / Interest expense

EBIT = $580,000 - $350,000 - $45,000 - $90,000 -$15,000

= $80,000

The company's interest coverage ratio is

= $80,000/$20,000

= 4.00

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Answer:

option b) -0.35%

Explanation:

For tax rate = 40%

After after-tax cost of debt = cost of debt × ( 1 - Rate )

= 7% × ( 1 - 0.40 )

= 4.20%

For tax rate = 45%

After after-tax cost of debt = cost of debt × ( 1 - Rate )

= 7% × ( 1 - 0.45 )

= 3.85%

Therefore, the change in cost of debt = 3.85% - 4.20% = -0.35%

Hence,

Correct answer is option b) -0.35%

3 0
3 years ago
Sally’s parents deposited $15,000 into a college savings account on her third birthday. The account had an interest rate of 9.6%
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Answer:

The correct option is yes,the $15,000 will double each 7.5 years.In 15 years ,it will double twice.

Explanation:

The 72 rule stipulates that the number of years it would take an investment to achieve accumulate a certain amount- future value, can be computed by dividing 72 by the interest rate earns by the investment

N, the number of years=72/9.6

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Invariably,in 7.5 years' when Sally would have been 10.5 years(3 years now+7.5 years) the investment would have doubled.

By another 7.5 years when Sally would have been 18 years(10.5 years +7.5 years), the investment would have doubled twice.

The 72 rule is fast-track approach to calculating the duration of an investment.

7 0
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Read 2 more answers
Which of the following statements is​ correct?
vladimir2022 [97]

Answer:

C. Governments have a difficult time​ fine-tuning the economy by using fiscal policy because there are several time lags and these are often variable.

Explanation:

Fiscal policy includes two important tools, one is taxation and the other is government spending, the balance of which is essential for the sustainable economy, however the collection of expected tax and the nature of spending (also include the priorities) takes time and certain variable factors e.g. economic growth (GDP), employment, inflation, etc makes it difficult for the government to fine tune the economy.

8 0
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National Bank quotes the following for the British pound and the New Zealand dollar: Quoted Bid Price Quoted Ask Price Value of
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Answer:

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Arbitrage refers to the prospect of earning a profit by utilizing the mispricing in two different financial markets. An arbitrageur never uses his own funds and always borrows.

Arbitrage works only in the scenario wherein the interest rate purchase parity (IRPT) does not hold good.

The strategy of arbitrage is best explained as "Buy at low price and sell at a high price".

 

7 0
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4 0
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