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gtnhenbr [62]
3 years ago
12

Aspen's Distributors has a levered cost of equity of 13.84 percent and an unlevered cost of capital of 12.5 percent. The company

has $5,000 in debt that is selling at par. The levered value of the firm is $14,600 and the tax rate is 34 percent. What is the pretax cost of debt?
Business
1 answer:
Reptile [31]3 years ago
6 0

Answer:

8.60%

Explanation:

We use the MM proposition II with taxes

r_e = r_a + \frac{D}{E} (r_a-r_d)(1-t)

ra 0.125

D 5000

E 9600 (14,600 assets = 5,000 liab + equity)

rd ??

taxes 0.34

re 0.1384

We set p the formula and solve:

0.1384 = 0.125 + \frac{5,000}{9,600} (.125-r_d)(1-.34)

0.1384 = 0.125 + \frac{5,000}{9,600} (.125-r_d)(1-.34)

0.1384 - 0.125 = 0.34375 (.125-r_d)

0.0134 = 0.34375\times 0.125 - 0.34375\times r_d

r_d = (0.34375\times 0.125 - 0.0134)\div 0.34375

rd = 0.860181818 = 8.60%

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Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1912. It
Fittoniya [83]

Answer:

FV= $159,840.60

Explanation:

Giving the following information:

Initial investment= $1,000

Number of years= 2016 - 1912= 104

Interest rate= 5%

<u>To calculate the value of the investment today, we need to use the following formula:</u>

FV= PV*(1+i)^n

FV= 1,000*(1.05^104)

FV= $159,840.60

6 0
3 years ago
Some of the most common challenges of working on a team are:
Dmitrij [34]

Answer: C. Picking the right people to work with on the team

Explanation:

For the work to be carried out successfully it is important to have the right staff. When you choose the right people, it's much easier to be able to work as a team. Having the right person means that you are someone with goals that go along the same lines as the company, someone who follows the schedules at the time of the meetings and who is aware of the importance of feedback.

When companies hire someone, they make sure that they can be someone who is committed to performing their stated duties, someone with ideas and a good push for the team.

3 0
3 years ago
Macmillan Toys Inc. is located in the nation of Ruffino near the nation of East Fenwick. Macmillan Toys is considering expanding
Lilit [14]

Answer: Political Distance

Explanation:

Political distance refers to a difference in opinion and policies as well as relations that countries have amongst themselves. In this scenario, this is the most likely bone of contention that would prevent Macmillan Toys from expanding into Rusalka.

This is because land disputes fall under political distance and can get very serious. So serious in fact that nations have gone to war over such disputes with the latest being Azerbaijan and Armenia. Macmillan Toys may therefore find it difficult to expand into the country due to this land dispute.

4 0
3 years ago
Which of the following antitrust acts would make it illegal for a board member of Microsoft to sit on the board of Apple?
saw5 [17]
I think its the Sherman Act
3 0
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Which of the following is correct with respect to Debt Service Funds?
Verizon [17]

Answer:

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Explanation:

Debt service funds are used to pay for principal and interest on certain types of debts. This reduced the risk of debt security that investors face and also reduces the effective rate at which the offering can be sold.

However debt service funds cannot be used for proprietary funds like 400 and 500.

Instead we use Enterprise funds for 400. That is operations similar to corporate enterprise. For example water and sewage utilities.

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5 0
3 years ago
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