Question

Question 1 Verizon LLC has $600,000 in debt outstanding, and it pays an annual interest of...

Question 1

Verizon LLC has $600,000 in debt outstanding, and it pays an annual interest of 7.0% on the debt. Annual Sales = 2,000,000; Tax Rate = 30%. Net profit margin = 5%. What's the firm's time interest earn?

a. 4.1 b. 4.2 c. 4.3 d. 4.4 e. 4.5

Question 2

John Houston now has $1000. How much would he have after 8 years if he leaves it invested at 6.25% with annual compounding?

1.

$1,224

2.

$1,324

3.

$1,424

4.

$1,524

5.

$1,624

Homework Answers

Answer #1

a. The times interest earned is computed as shown below:

= [ (Net profit margin x Annual sales) / (1 - tax rate) + Debt x interest rate ] / (Debt x interest rate)

= [ (5% x $ 2,000,000) / (1 - 0.30) + $ 600,000 x 7%] / ($ 600,000 x 7%)

= $ 184,857.1429 / $ 42,000

= 4.4 Approximately

b. The amount is computed as shown below:

Future value = Present value x (1 + r)n

= $ 1,000 x 1.06258

= $ 1,624 Approximately

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