Answer:
Option (a) 12.23%
Explanation:
Data provided in the question:
Debt-equity ratio = 0.6
or
Debt = 0.6 × Equity
Cost of equity, ke = 16% = 0.16
Pretax cost of debt, kd = 9% = 0.09
Tax rate = 34% = 0.34
Now,
Firm's WACC = [ weight of equity × ke] + [ Weight of debt × kd × (1-Tax rate) ]
also,
weight of equity = Equity ÷ ( Debt + equity )
= Equity ÷ ( 0.6 × Equity + equity )
= 1 ÷ 1.6
= 0.625
weight of Debt = Debt ÷ ( Debt + equity )
= 0.6 × Equity ÷ ( 0.6 × Equity + equity )
= 0.6 ÷ 1.6
= 0.375
Thus,
Firm's WACC = [ 0.625 × 0.16 ] + [ 0.375 × 0.09 × (1- 0.34) ]
= 0.1 + 0.022275
= 0.122275
or
= 0.122275 × 100%
= 12.2275% ≈ 12.23%
The technology associated with the manufacturing computers has advanced tremendously. This change has led to the price of a computer <u>falling</u> and the quantity <u>increasing</u>.
Lower prices most likely results in a higher demand for the product in question, which will increase the production rate of that product.
Answer:
Price variance will be $4512.5 ( Unfavorable )
Explanation:
We have given standard material cost per yard = $2
Actual material cost per yard = $2.10
Standard yards per unit = 4.5
And actual yards per unit = 4.75
Units of production = 9500
Total number of actual quantity used = 9500×4.75 = 45125
So direct material price variance = ( standard price - actual price ) × actual quantity used = ( $2 - $2.1 ) × 45125 = -$4512.5
So price variance will be $4512.5 ( Unfavorable )
Answer:
Wally and Pay More Incorporated
The loan resulted in any income to Wally of $3,960 ($4,320 - $360), which would have been a cost he would have incurred had he borrowed the loan at the prevailing federal interest rate.
On the other hand, it resulted in a lost revenue (expense) of $3,960 ($4,320 - $360) which Pay More Incorporated could have earned if it had loaned it at the prevailing federal interest rate. This expense is a compensation expense.
Explanation:
Pay More's Loan to Wally = $36,000
Interest rate = 1%
Prevailing interest = $4,320
Interest paid = $360
Difference between prevailing interest and interest paid by Wally = $3,960 ($4,320 - $360).
