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    thamariai's Avatar
    thamariai Posts: 2, Reputation: 1
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    #1

    Apr 7, 2007, 03:45 AM
    What is cost of ineffiency
    Hi


    How to calculate cost of inefficiency, relevant with cost of capital.


    Thanks


    Maria
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    2. NeedKarma's Avatar
    NeedKarma Posts: 10,635, Reputation: 1706
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    #2

    Apr 7, 2007, 04:14 AM
    https://www.askmehelpdesk.com/arts-l...board-b-u.html
    thamariai's Avatar
    thamariai Posts: 2, Reputation: 1
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    #3

    Apr 7, 2007, 04:27 AM
    Thank you

    This is my working on question C
    Annual cost of the firm's inefficiency
    Net profits before tax=92,576, Shareholders' equity=2177476
    Return on Investment Ratio = net profits before tax / shareholders equity. (92576+21600)/2177476=13%
    (18-13)/18=28% cost of inefficiency.

    and D
    $1,892,400 - $1,797,780 = $94,620
    Cost of credit2/10,net30 = % Discount/(100-% Discount) X 360/(Credit Period – Discount Period)
    = (2/98) X (360/20)
    =36.73%
    Cost of credit5/10,net42 = (5/95) X (360/32)
    =59.21%
    but I am not sure if they are correct.


    Thanks
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