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Mamont248 [21]
3 years ago
14

Alpha Products maintains a capital structure of 40 percent debt and 60 percent common equity. To finance its capital budget for

next year, the firm will sell $50 million of 11 percent debentures at par and finance the balance of its $125 million capital budget with retained earnings. Next year Alpha expects net income to grow 7 percent to $140 million, and dividends also are expected to increase 7 percent to $1.40 per share and to continue growing at that rate for the foreseeable future. The current market value of Alpha's stock is $30. If the firm has a marginal tax rate of 40 percent, what is its weighted cost of capital for the coming year
Business
1 answer:
ad-work [718]3 years ago
8 0

Answer:

its weighted cost of capital for the coming year is 9.64%

Explanation:

WACC is the minimum return expected from a project. It shows the risk of the company.

<u>Calculation of WACC.</u>

Capital Source              Weight            Cost               Total

Debt                                  40%            6.60%             2.64%

Common Equity               60%             11.67%            7.00%

Total                                100%                                    9.64%

Cost of Debt = Market Interest Rate × ( 1 - tax rate)

                     = 11%×(1-0.40)

                     = 6.60%

Cost of Equity = (Next year`s dividend/Current Market Price of a share)+Expected growth rate

                       = ($1.40/$30)+0.07

                       = 11.67%

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Explanation:

A planning concerned with long-range decisions such as defining the scope of business is referred to as the strategic planning.

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3 0
3 years ago
Assume that the economy is at equilibrium at $10 trillion, with a marginal propensity to consume of 0.75. If exports rise by $0.
Arlecino [84]

Answer:

Option (c) is correct.

Explanation:

Multiplier effect = 1 ÷ (1 - marginal propensity to consume)

                           = 1 ÷ (1 - 0.75)

                           = 4

Net exports = Exports - Imports

                    = 0.5 - 0.7

                    = (-0.2)

Impact on the equilibrium income  = Net exports × Multiplier effect

                                                          = (-0.2) × 4

                                                           = (-0.8),

so, the equilibrium income will fall by $0.8 trillion.

7 0
4 years ago
Which of the following is a unique feature of credit unions?
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3 years ago
Arlene knows it is important to approach business buyers at the right time, often during the first stage of their buying process
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Arlene knows it is important to approach business buyers at the right time, which is often during the first stage of their buying process.

She stays in touch with her customers, hoping to find out when they are going through: need recognition.

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5 0
2 years ago
During the year, Hamlet Inc. paid $ 26,000 to have bond certificates printed and engraved, paid $ 110,000 in legal fees, paid $
baherus [9]

Answer:

$388,000

Explanation:

Data provided

Bond certificates printed = $26,000

Legal fees paid = $110,000

CPA registration = $12,000

Underwriter commission = $240,000

The calculation of amount of bond issue costs is shown below:-

Total Bond issue costs = Bond certificates printed + Legal fees paid + CPA registration + Underwriter commission

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8 0
3 years ago
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