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Fynjy0 [20]
3 years ago
6

Quantitative Problem: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a

n 8% coupon, semiannual payment ($40 payment every 6 months). The bonds currently sell for $847.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt
Business
1 answer:
posledela3 years ago
8 0

Answer:

After-tax cost of debt = 73.06%

Explanation:

Nper = 20*2 = 40

Pmt = 40

Pv = -847.87

Fv = 1000

Tax rate = 25%

<em>Firm's after-tax cost of debt is calculated as follow:</em>

After-tax cost of debt = RATE(Nper, Pmt, Pv, Fv) * (1-tax rate)

After-tax cost of debt = (RATE(20*2,40,-894.87,1000)*2)*(1-25%)

After-tax cost of debt =  (0.048709771*2) * 0.75

After-tax cost of debt = 0.097419542 * 0.75

After-tax cost of debt = 0.0730646565

After-tax cost of debt = 73.06%

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Plainville Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?
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Inventory cycle  = <u>Inventory </u>               x 365  days

                             Cost of goods sold      

Inventory cycle  = <u>$75,000</u>     x 365 days

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                            = <u>$160,000</u>   x 365 days

                               $600,000  

                            =  97.33 days

Payable days      = <u>Accounts payable</u>  x 365 days

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                            = <u>$25,000 </u>    x 365 days

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Cash conversion cycle

= Inventory cycle + Receivable days - Payable days

= 76.04 days + 97.33 days - 25.35 days

=  148.0 days

Explanation:

Cash conversion cycle is calculated as raw inventory cycle plus receivable days minus payable days. Inventory cycle is the ratio of inventory to cost of goods sold multiplied by number of days in a year. Receivable days refer to the ratio of accounts receivable to sales multiplied by number of days in a year. Payable day is the ratio of accounts payable to cost of goods sold multiplied by number of days in a year.

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