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SVETLANKA909090 [29]
3 years ago
14

A firm has 5,000,000 shares of common stock outstanding, each with a market price of $8.00 per share. It has 25,000 bonds outsta

nding, each selling for $1,100 with a $1,000 face value. The bonds mature in 12 years, have a coupon rate of 9 percent, and pay coupons semi-annually. The firm's equity has a beta of 1.4, and the expected market return is 15 percent. The tax rate is 35 percent and the WACC is 14 percent. Calculate the risk-free rate. Group of answer choices 2.05 percent 1.19 percent 20.18 percent 15.27 percent
Business
1 answer:
Romashka [77]3 years ago
7 0

Answer:

2.05 percent

Explanation:

WACC is given by:

= weight of equity*cost of equity + weight of debt*cost of debt  

total = $67500000

weight of equity is given by:

= $40000000/(5000000*$8.00 + 25000*$1100)

= ($40000000/$67500000)*100

= 59.26%

weight of debt = ($27500000/$67500000)*100

                         = 40.74%

after tax cost of debt = cost of debt(1 - tax rate)

                                   = 0.09(1 - 0.35)

                                   = 5.85%

WACC = (0.5926*cost of equity) + (0.4074*5.85%)

0.14 = (0.5926*cost of equity) + 0.0238329

cost of equity = 0.14 - 0.0238329 /0.5926

                       = 19.60%

cost of equity = risk free rate + beta(market return - risk free rate)

          19.60% = risk free rate + 1.4(15% - risk free rate)          

          19.60% = risk free rate +21% - 1.4*risk free rate

0.4*risk free rate = 1.40%

      risk free rate = 1.40%/0.4

      risk free rate = 2.05%

Therefore, The risk-free rate is 2.05%

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Answer:

10%

Explanation:

The Percentage of tax that John pays on his income last year shall be calculated using the below mentioned formula

Percentage of taxes=taxes paid by John/total income of John last year

In the given question

tax paid by John=$2,500

total income of John last year=$25,000

Percentage of taxes=2,500/25,000=10%

8 0
3 years ago
Barbara Hastings has no children of her own, but she does have a beloved niece named Ellen Laughridge. Attentive to the future f
timurjin [86]

Answer:

1. Ellen would only be able to recover the $500,000 insurance proceed if she should be able to find a technicality in the insurance company's rules and regulation. <em>This is because, strictly following the rules, there is nothing she can do regarding to the claim.</em>

<em />

2. It is not ethical for the insurance company to deny the claim of Ellen on the basis of technicality but when viewed from another perspective, they are strictly following the rules of the insurance organization and applying it to the later.<em> It is now left for the claimant to find another technicality on why he or she must be paid the insurance claim.</em>

Explanation:

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3 years ago
Select the correct answer. who makes decisions regarding changes in the discount rate? a. the president b. the board of governor
Taya2010 [7]

The correct answer is option B.

The board of governors make decisions regarding changes in the discount rate.

<h3><u>What is board of governors?</u></h3>
  • The Federal Reserve System is governed by the Board of Governors, which is based in Washington, D.C.
  • It is governed by seven individuals, known as "governors," who are appointed by the American president and approved in their roles by the American senate.
  • In order to advance the objectives and carry out the duties assigned to the Federal Reserve by the Federal Reserve Act, the Board of Governors directs how the Federal Reserve System is run.
  • The FOMC, the section of the Federal Reserve that determines monetary policy, includes all of the Board members.
  • The periods of each member of the Board of Governors are staggered so that one term ends on January 31 of every even-numbered year. Each member is appointed to the position for a 14-year period.

When the Reserve Banks lend to depository institutions and others, as well as when they offer financial services to depository institutions and the federal government, the Board also offers general oversight, direction, and counseling.

Know more about board of governors with the help of the given link:

brainly.com/question/3935458

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2 years ago
Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conc
dolphi86 [110]

Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that the economy was not employing all of its resources before the policy change.

Explanation:

Policies by government will affect economic growth

Government policies have a major role to play in encouraging (or deterring) economic growth. Economic policies that lead to economic growth include:

Investing in infrastructure:

Infrastructure, such as highways or bridges, is tangible capital available to all. Governments are increasing their capital stock in the country by investing in infrastructure.

Productivity and labor participation strategies :

Promoting a higher rate of labor participation, for example labor participation tax incentives, will lead to even more economic growth.

Policies promoting accumulation of capital and technological advancement:

Savings-enhancing strategies that lead to higher growth and thus capital investments. Strategies that encourage technological innovation, such as research and development tax credits, often lead to increased economic growth.

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A supermarket places its store brand of blackberry jam priced at $5 per jar in the fruit preserves aisle, alongside the jam jars
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