Answer:
WACC = 0.18 or 18%
Option b is the correct answer.
Explanation:
The WACC or weighted average cost of capital is the cost of a firm's capital structure that can contain one or more of the following components, namely debt, preferred stock and common equity. The formula to calculate the WACC is as follows,
WACC = wD * rD * (1-tax rate) + wP * rP + wE * rE
Where,
- w represents the weight of each component
- D, P and E represents debt, preferred stock and common equity respectively
- r represents the cost of each component
- rD * (1-tax rate) represents the after tax cost of debt
WACC = 0.2 * 0.16 + 0.8 * 0.185
WACC = 0.18 or 18%
I believe the answer is: High-income earners use tax laws to their advantage to reduce their tax rates
High income earners tend to possess financial knowledge or ability to allow experts who understand the full scope of taxation laws and how to recorded the transactions in a way that make it eligible for tax deduction. This makes a lot of high income earners manage to avoid paying taxes even if they manage to obtain a lot of profit.
Answer:
a. continue with the project provided that the additional solar electricity is worth more than $10 million.
Explanation:
It is provided that after cost overruns of the project is $10 million, which can never be recovered, thus, it is a kind of sunk cost.
Sunk cost is the cost which is made previously, and now in no manner will affect the decision, as cannot be recovered.
Therefore, such cost is ignored.
Further provided additional cost will be $12 million, therefore, now the society shall make a rational choice whether to continue the project providing solar electricity of $10 million, as in case of amount of solar energy is $32 million or $22 million, then the choice is obvious to accept,
Rational choice will be for solar electricity worth $10 million.
Therefore, correct statement is
a. continue with the project provided that the additional solar electricity is worth more than $10 million.
