Answer:
b) most shareholders have little direct control over how the company is managed.
Answer:
a. 4.94%
b. 11.48%
Explanation:
Here in this question, we are interested in calculating the pretax cost of debt and cost of equity.
We proceed as follows;
a. From the question;
The debt equity ratio = 1.15
since Equity = 1 ; Then
Total debt + Total equity = 1 + 1.15 = 2.15
Mathematically ;
WACC = Cost of equity x Weight of equity + Pretax Cost of debt x Weight of debt x (1-Tax rate)
Where WACC = 8.6%
Cost of equity = 14%
Weight of equity = 1/(total debt + total equity) = 1/(1+1.15) = 1/2.15
Pretax cost of debt = ?
Weight of debt = debt equity ratio/total cost of debt = 1.15/2.15
Tax rate = 21% = 0.21
Substituting these values, we have;
8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)
8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)
Pretax cost debt = (8.6%-6.511628%)/(1.15/2.15 x (1-21%))
Pretax cost of debt = 4.94%
b. WACC = Cost of equity x Weight of equity + After tax Cost of debt x Weight of debt
8.6% = Cost of equity x 1/2.15 + 6.1% x 1.15/2.15
Cost of equity = (8.6%-3.26279%)/(1/2.15)
Cost of equity = 11.48%
Answer: Start = $300 million
End = $318.59 million
Explanation:
NAV can be calculated by dividing the funds Assets net of Liabilities by the total number of outstanding shares.
At start of the year NAV is $300 million and NAV per share is therefore,
= 300 million/ 10 million
= $30 per share.
Ending NAV
During the year the fund made Investments and increased by a price of 7%
= 300 million (1 + 0.07)
= $321 million
We still have to subtract the 12b-1 fees that the fund charges though and that would result in,
= 321 million * (1 - 0.0075)
= 318.5925
= $318.59 million.
Dividing this by the total number of outstanding shares we have,
= 318.59 /10
= $31.86
$31.86 is the NAV per share at year end.
Answer:
$0.20 or 20 cents for every dollar invested as assets
Explanation:
To determine how many dollars (or cents) of net income did Walk Co. generate for every dollar of assets invested we have to;
divide Walk Co.'s net income by its total assets = $40,000 / $200,000 = $0.20 or 20 cents. This is called the
