Answer:
Because this is an inter-entity balance then the amount that should be eliminated of this debt is the letter D. all the $400,000.
Explanation:
Inter entity balance facilitates the management of allocations and transfers between entities. They provide a better control over transactions spanning multiple entities, other benefit is that the accuracy of the financial data improves and finally and this is why the anser is option D. is that it keeps each entity in balance
Answer:
The WACC before bond issuance is 3.9% and the WACC after bond issuance is 3.71%
Explanation:
In order to calculate the WACC before bond issuance
, we would have to calculate first the cost of equity using capital asset pricing model
.
So Using CAPM we have Rf + Beta x Market risk premium
=
0.5% + 0.85 * 4%
= 3.9%
. cost of equity
Therefore WACC before bond issuance = (Cost of equity x weight of equity + cost of debt (1-tax) x weight of debt)
= 3.9%
. WACC before bond issuance will be equal to cost of equity in this case as there is no debt issue.
In order to calculate the WACC after bond issuance we make the following calculation:
WACC after bond issuance = (Cost of equity x weight of equity + cost of debt (1-tax) x weight of debt)
= (3.9% x 0.9) + (2% x 0.1)
= 3.51% + 0.2%
= 3.71%
Answer: The firms are faced with two options, the first is covering variable cost, which they can consider in a short run, which they can pay some of their fixed cost. If they shut down completely they would pay all their fixed costs.
Explanation:
The firms are faced with two options, the first is covering variable cost, which they can consider in a short run, which they can pay some of their fixed cost. Alternatively, if they shut down completely they would pay all their fixed costs. As long as the operating cost is not much, they would keep working.
