You have purchased a machine costing $30000. The machine will be used for 2 years, and at the end of this time, its salvage valu
e is expected to be $18000. The machine will be used for 6,000 hours during the first year and 8000 during the second year. The expected annual net savings will be $35000 during the first year and $42000 during the second year. If your interest rate is 12%, what would be the equivalent net savings per machine hour
1 answer:
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Answer: 1.41
Explanation:
Given that,
Debt outstanding = $300,000
interest rate = 8% annually
annual sales = $1.5 million
average tax rate = 40%
net profit margin on sales = 4%
interest amount = 300,000 × 0.08
= $24,000
net profit = 4% of 1.5 million
= $6,000
Profit before tax =
= $10,000
earning before interest and tax = profit before tax + interest
= $10,000 + $24,000
= $34,000
TIE ratio =
=
= 1.41