Answer:
C. VL = VU + PV(Tax Shield) - PV(CFD)
Explanation:
The static trade off theory is a theory of capital structure in corporate finance, first proposed by Alan Kraus and Robert H. Litzenberger. The theory emphasizes the trade-offs between the tax benefits of increasing leverage and the cost of bankruptcy associated with higher leverage. The <u>answer is C</u> as we know relative to the unleveraged firm, leverage provides both costs and benefits. The benefits are the tax shields provided by debt.
Answer:
$157,300
Explanation:
The computation of the interest capitalized is as follows:
= Accumulated expenditure × rate of interest
= ($610,000 × 12 months ÷ 12 months) + ($1,800,000 × 4 months ÷ 12 months) + 0 × 13%
= ($610,000 + $600,000) × 13%
= $1,210,000 × 13%
= $157,300
Contribution margin is calculated via subtracting the variable cost per unit to the sales price per unit. In equation, we have
Contribution margin = Sales Price - Variable Cost
Contribution margin ratio is calculated via dividing the contribution margin with the sales price. In equation, we have
Contribution margin ratio = contribution margin/sales price
Substituting the given values,
Contribution margin ratio for 65$ variable cost = (120-65)/120 = 0.4583
Contribution margin ratio for 58$ variable cost = (120-58)/120 = 0.5167
<em>ANSWERS: 0.4583 or 45.83% and 0.5167 or 51.67%</em>
Answer:
Reject,
Explanation:
When calculating the IRR, I got 16.6%, which is less than the wacc. This means that the rate of return is lower than what it costs 18% wacc.
I think the answer should be reject, less.
