Consider a business that has an ITR of 5.8 and operates 360 days a year....
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Consider a business that has an ITR of 5.8 and operates 360 days a year. It applies a markup of 15% to cost in determining the price of its products. (a) Assume that 60% of its capital is borrowed at an interest rate of 30%, and all sales are cash. What is the expected annual rate of return on capital after interest is paid? (b) Now assume that all capital was borrowed and 65% of sales are credit sales with an ARTR of 4.5. What is the expected annual rate of return on capital after interest payment? (c) Now in addition to the assumptions of (b) also assume that the business pays its suppliers in a way that APTR (accounts payable turnover ratio) of 6. What is the expected annual rate of return on capital after interest is paid?
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