What is the company cost of debt


Question:

A company has just been taken over by new management which believes that it can raise earnings before taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and thus reducing the cost of goods sold. Prior to the change, the following data applied:

Total assets: $8,000    Debt ratio: 45%
Tax rate:        35%      BEP ratio: 13.3125%
EBT:             $600       Sales:       $15,000

These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company's cost of debt? (Hint: Work only with old data.)

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Finance Basics: What is the company cost of debt
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