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tester [92]
3 years ago
10

Room and Board has determined that $41,650 is the break-even level of earnings before interest and taxes for the two capital str

uctures it is considering. The one structure consists of all equity with 15,500 shares of stock. The second structure consists of 12,500 shares of stock and $65,000 of debt. What is the interest rate on the debt?
Business
1 answer:
ipn [44]3 years ago
6 0

Answer:

Interest rate on debt is 12.40%

Explanation:

Since break-even EBIT $41,650 , the equation of the two capital structure can be written as below:

EPS under the first capital structure=EPS under the second capital structure

Generally EPS =EBIT/weighted average number of shares in an all equity financed structure like the first one

EPS=EBIT-(debt*interest rate)/weighted average number of shares in a mixed capital structure

$41,650/15,500=$41,650-($65000*interest rate)/12,500

by cross multiplication

41,650/15,500*12,500=41650-(65000*interest rate)

33588.71=41650-(65000*interest rate)

65000*interest rate=41650-33588.71

interest rate=(41650-33588.71)/65000

interest rate=12.40%

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$150,000

 

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Given that they often competen t powerful companies, it is imperative that entrepreneurs:
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Use strong judicial tools as patents and copyrights. Be flexible to enter the market. Understand that is more expensive to acquire a new client that to maintainn and excisting one.

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3 0
3 years ago
Suppose that Freddie's Fries has annual sales of $520,000; cost of goods sold of $395,000; average inventories of $11,000; avera
Nadusha1986 [10]

Answer:

8.78

Explanation:

The computation of the cash cycle is given below;

We know that

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Here

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2. Receivables conversion period = Avg. Accounts Receivable ÷ (Credit Sales × 365)

= (27000/520000) × 365

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8 0
2 years ago
Theresa owes %249%2C000 on her car loan. If the value of her car is %2415%2C000%2C what is her equity in the car%3F
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Answer:

The answer is "\$6,000".

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Please find the complete question in the attached file.

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8 0
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