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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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Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership’s capital balances are Cait
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Dr Service cost 245,000

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Cr Cash 411,400

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Cr Service cost 245,000

Cr Interest 166,400

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Preparation of the journal entries to record annual pension expense for the enterprise fund of Amherst City

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Dr Service cost 245,000

Cr Interest 166,400

Cr Cash 411,400

(245,000+166,400)

Dr Plan assets - pension 411,400

(245,000+166,400)

Cr Service cost 245,000

Cr Interest 166,400

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3 years ago
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