Make sure that your changes do not __

Cost of Debt KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par that carries a co

Ivahew [28]

Answer:

the annual pre-tax cost of debt is 10.56%

Explanation:

the beore-tax component cost of debt will be the actual market rate of the bonds, as they offer an interest rate of 11% but are selling at 104 points not at par thus, there is a difference between the rates.

We solve for the rate which makes the coupon and maturity 104

with excel or a financial calculator

PV of the coupon payment

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 5.500 (100 x 11%/2)

time 60 (30 years x 2 payment per year)

rate 0.052787474

$5.5 \times \frac{1-(1+0.0527874736258532)^{-60} }{0.0527874736258532} = PV\\$

PV $99.4338

PV of the maturity

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 100.00

time 60.00

rate 0.052787474

$\frac{100}{(1 + 0.0527874736258532)^{60} } = PV$

PV 4.57

Adding both we should get 104 which is the amount the bonds is selling:

PV coupon $99.4338 + PV maturity $4.5662 = $104.0000

The rate is generated using goal seek or wiht a financial calculator.

This rate is a semiannual rate, so we multiply by 2 to get the annual cost of debt:

0.052787474 x 2 = 0.105574947

The cost of debt for the firm is 10.56%

5 0

3 years ago

Providing an analysis for a company regarding adding a particular product line, retracting sales markets, or dealing with risks

Irina18 [472]

Answer:

The answer is true.

Explanation:

The managerial accounting must do:

-planning and desition support.

For example, fully absorbed and incremental costing, adaptive operation and cost-based planning, product process channel and customer strategic adaptatios, enterprise optimization.

-Performance evaluation and analysis.

Assessment of current strategy and plans, integrated cost operational performance measures, profitability reporting, process analysis.

4 0

4 years ago

If you make a false statement or commit a forgery about your motor vehicle insurance you can be guilty of a ________ degree misd

Vinil7 [7]

If you make a false statement or commit a forgery about your motor vehicle insurance you can be guilty of a Second Degree Misdemeanor
From the different classes of misdemeanor, a second degree misdemeanor is considered less serious compared to the first degree. The punishment for second-degree misdemeanor will be no more than 2 years

6 0

3 years ago

Read 2 more answers

Elc inc. is an electronic appliances manufacturer that has many strategic business units (sbus), among which, television and com

Sedbober [7]

Answer:

The answer is multi-divisional structure.

Explanation:

A company employing multi-divisional structure would usually function as a parent company that has many business units under it operating different business sectors. This is clearly the case of Elc Inc., since it both manufactures televisions and computers. The fact that both businesses share the same budget shows that the two business units are still operating in the same company.

4 0

3 years ago

Adams, Incorporated would like to add a new line of business to its existing retail business. The new line of business will be t

Alekssandra [29.7K]

Answer:

machine's cost = $200,000 + $10,000 + $30,000 = $240,000

useful life of 4 years

salvage value of $25,000, depreciable value = $215,000

MACRS 3-year asset:

0.333 x $215,000 = $71,595
0.445 x $215,000 = $95,675
0.148 x $215,000 = $31,820
0.074 x $215,000 = $15,910

incremental sales of 1,250 units per year, during 4 years:

1,250 x $200 = $250,000
1,250 x $206 = $257,500
1,250 x $212.18 = $265,225
1,250 x $218.55 = $273,188

incremental COGS of 1,250 units per year, during 4 years:

1,250 x $100 = $125,000
1,250 x $103 = $128,750
1,250 x $106.09 = $132,613
1,250 x $109.27 = $136,588

net working capital increases by 12% of sales revenue = $250,000 x 12% = $30,000

WACC = 10%

tax rate = 40%

initial investment = $240,000 (machine cost) + $30,000 (working capital) = $270,000

net cash year 1 = [($250,000 - $125,000 - $71,595) x (1 - 40%)] + $71,595 = $103,638
net cash year 2 = [($257,500 - $128,750 - $95,675) x (1 - 40%)] + $95,675 = $115,520
net cash year 3 = [($265,225 - $136,588 - $31,820) x (1 - 40%)] + $31,820 = $92,295
net cash year 4 = [($273,188 - $136,588 - $15,910) x (1 - 40%)] + $15,910 = $88,324 + $25,000 (salvage value) + $30,000 (net working capital) = $143,324

to calculate the present value:

PV = $103,638/1.1 + $115,520/1.1² + $92,295/1.1³ + $143,324/1.1⁴ = $94,216 + $95,471 + $69,343 + $97,892 = $356,922

NPV = $356,922 - $270,000 = $86,922

4 0

4 years ago

Make sure that your changes do not ___ your clients.