Requirement 2. At what level of revenues will CathyCathy Rugs earn the same operating income under either option? a. For what r
ange of unit sales will CathyCathy Rugs prefer option 1? b. For what range of unit sales will CathyCathy Rugs prefer option 2? Begin by determining the formula to calculate the operating income where each option is equal.
1 answer:
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Answer:
1) 13.42%
2) 6.56%
Explanation:
a. Given:
Par value of bonds (FV) = $1,000
Coupon rate = 10%
Coupon payment (pmt) = 0.1 × 1,000 = $100
Present value of bond = $865
Maturity period (nper) = 6
Use spreadsheet function =rate(nper,pmt,-PV,FV)
Yield to maturity when price of bond is $865 is 13.42%
2) If PV is $1166, then yield to maturity is 6.56%
If interest rate is 12%
FV is $1,000
Pmt is $100
nper = 6
The use spreadsheet function =PV(rate,nper,pmt,FV) to compute present value of bond.
Present value of bond is $917.77
Since present value of bond is more high, one can pay $865 for each bond.
