Hi


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


Thanks


Maria

https://www.askmehelpdesk.com/arts-l...board-b-u.html

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