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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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4 years ago
In your initial post, you are to write to either the President (on fiscal policy) or to the Chair of the Federal Reserve (on mon
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Answer:

The existing state of American economy must be declared earlier respondent the interrogation.

The U.S. financial position is vigorous in 2017.The value rate is in its perfect vary i.e., 2.4 (2-3%).Joblessness is at its ordinary proportion and there isn't an excessive amount of rise or decrease. Conversely, the value is predicted to descent to a pair of 2.1% in 2018 and 2.0 in 2019. Drop in value would cause decrease in GDP and growth in state.

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3 years ago
in a recent issue of aarp the magazine, a print ad for state farm insurance annuities advises readers that "the company has help
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<h3>Who are the baby boomers?</h3>

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Answer:

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The Federal Funds rate is the interest rate that commercial banks with excess reserves lend to others in deficit.  The resulting shift occasions a decrease in the real interest rate which triggers an increase in the inflation rate, and vice versa.  With such short-run changes in the interest rate, inflation and output is influenced in desirable directions by the Federal Reserve as a foundation to achieve long-term shifts in the AD-AS model.

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