3. company has fixed cost 2 milloin a year , variable 1.75, average seling price 2 . find annual oprating break even point. find if variabe cost decline 1.68 what the break even point?
i got BEP in Units =8
i am not sure about it. pls help me .
Q2.it is a solved question but i don't know how the quadratic equation is solved in this question.pls tell me the steps by putting values in quadratic equation.I want to know about the 16% and -5%.how i can get them by quadratic equation.
Company ABC issues a 2 Year Bond of Par Value Rs 1000 and a Coupon Rate of 10% pa (and
annual coupon payments). Company ABC pays an Investment Bank Rs 50 per Bond to structure and
market the bond. They decide to sell the Bond for Rs 950 (i.e. At a Discount). At the end of the first
year, Company ABC’s Income Statement shows the Coupon Interest paid to Bondholders as an expense.
Interest represents a Tax Saving or Shield. Based on the Net Income and Industry Standard, the
Marginal Corporate Tax Rate is 30% of Net Income. Assuming that the 2 Year Bond represents the
ONLY form of Capital, calculate the After-Tax Weighted Average Cost of Capital (WACC) % for
Company ABC.
Step 1:
Calculate Required ROR using Bond Pricing or PV Formula
PV = 100/ (1+r*) +100/ (1+r*) 2 +1000/ (1+r*) 2
= 100/ (1+r*) + 1100/ (1+r*) 2
= Net Proceeds = NP = Market Price -Transaction Costs
= 950 - 50 = Rs 900
Solve the Quadratic Equation for Pre-Tax Required ROR = r*
Using the Quadratic Formula: r* = 16% AND r = - 5 %
Step 2:
Calculate After Tax Cost of Debt
rD = rD* ( 1 - TC ) = 0.16 ( 1 - 0.30) = 0.16 (0.70) = 11 . 2 %
Step 3:
Calculate Weighted Cost of Capital (WACC)
WACC = rD XD. + rP XP + rE XE .
= rD XD + 0 + 0
= 11.2 (1) = 11.2 %
i got BEP in Units =8
i am not sure about it. pls help me .
Q2.it is a solved question but i don't know how the quadratic equation is solved in this question.pls tell me the steps by putting values in quadratic equation.I want to know about the 16% and -5%.how i can get them by quadratic equation.
Company ABC issues a 2 Year Bond of Par Value Rs 1000 and a Coupon Rate of 10% pa (and
annual coupon payments). Company ABC pays an Investment Bank Rs 50 per Bond to structure and
market the bond. They decide to sell the Bond for Rs 950 (i.e. At a Discount). At the end of the first
year, Company ABC’s Income Statement shows the Coupon Interest paid to Bondholders as an expense.
Interest represents a Tax Saving or Shield. Based on the Net Income and Industry Standard, the
Marginal Corporate Tax Rate is 30% of Net Income. Assuming that the 2 Year Bond represents the
ONLY form of Capital, calculate the After-Tax Weighted Average Cost of Capital (WACC) % for
Company ABC.
Step 1:
Calculate Required ROR using Bond Pricing or PV Formula
PV = 100/ (1+r*) +100/ (1+r*) 2 +1000/ (1+r*) 2
= 100/ (1+r*) + 1100/ (1+r*) 2
= Net Proceeds = NP = Market Price -Transaction Costs
= 950 - 50 = Rs 900
Solve the Quadratic Equation for Pre-Tax Required ROR = r*
Using the Quadratic Formula: r* = 16% AND r = - 5 %
Step 2:
Calculate After Tax Cost of Debt
rD = rD* ( 1 - TC ) = 0.16 ( 1 - 0.30) = 0.16 (0.70) = 11 . 2 %
Step 3:
Calculate Weighted Cost of Capital (WACC)
WACC = rD XD. + rP XP + rE XE .
= rD XD + 0 + 0
= 11.2 (1) = 11.2 %