Answer:
15.29%
Explanation:
Calculation to determine What would be the estimated cost of equity if the firm used 60% debt
First step is to calculate the Original beta using this formula
Original beta = (rs-rRf)/ RPM
Let plug in the formula
Original beta= (11.5%- 5%)/6%
Original beta= 6.5%/ 6%
Original beta= 1.083
Second step is to calculate the Original D/E using this formula
Original D/E = D/A / (1-D/A)
Let plug in the formula
Original D/E= .25/ (1-.25%)
Original D/E= .333
Third step is to calculate the Unlevered Beta using this formula
Unlevered Beta = Bu = Bl / 1+((1- Tax rate) x (D/E)
Let plug in the formula
Unlevered Beta= 1.083/1+((1-.4) x .333
Unlevered Beta=.90
Fourth step is to calculate the Target using this formula
Target =D/e
Let plug in the formula
Target = .6/.4
Target= 1.5
Fifth step is to calculate the New Beta using this formula
New Beta = bu* (1+(D/E)(1- tax rate)
Let plug in the formula
New Beta = .90 *(1+(1.5)*(.6)
New Beta = 1.71
Now let calculate the estimated cost of equity using this formula
rs = rRF + new beta (RPm)
Let plug in the formula
rs= 5% + 1.71*6
rs= 15.29%
Therefore What would be the estimated cost of equity if the firm used 60% debt is 15.29%
Answer: Insufficient competition but strong differentiation
Explanation:
Products can fail when there is sufficient competition with weak differentiation.
If instead there is insufficient competition, the product has a better chance of being successful because it is offering a service that not many other products can replicate. People will therefore buy more of it.
Also if the product is strongly differentiated, it means that the company took the extra step of adding features to the product to make it stand out and be more useful to the customer. This can increase the appreciation for a product which will increase it's demand this ultimately leading to the success of the product.
Answer:
d. Fixed Costs/(Price – Marginal Costs)
Explanation:
The break-even quantity is the number of units produced and sold at which net income is zero. it is the point at which revenues equals cost.
Break even quantity = Fixed Costs/(Price – Marginal Costs)
or Fixed cost / contribution margin
Answer:
Neither I nor II are correct
Explanation:
I. The nominal interest rate is also referred to as the APR or the stated rate.
This statement is not true because nominal interest rate is different from the annual percentage rate (APR).
A nominal interest rate is basically the interest rate is charged by banks or other financial institutions on a loan, and other expenses on the loan are not added to the interest when interest rate is being determined.
On the other hand, APR is nominal interest rate plus other expenses incurred in other to get the loan.
Therefore, nominal interest rate is usually lower than the APR. This makes them to be different.
II. You should use the nominal interest rate to compare two alternative investments/loans with different compounding periods.
This statement is not correct.
The interest rate is used to to compare two alternative investments/loans with different compounding periods is the effective interest rate.
The effective interest rate is the actual amount of interest rate that a lender or an investor earned on his loan, investment because of compounding that is done during a specific period of time. The effective annual interest rate is the interest rate that is employed to compare different investment products because, unlike other interest rate, compounded interest are estimated differently by it.
Therefore, Neither I nor II are correct.
I wish you the best.
