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olya-2409 [2.1K]
2 years ago
7

Salmon Inc. has debt with both a face and a market value of $227,000. This debt has a coupon rate of 7 percent and pays interest

annually. The expected earnings before interest and taxes is $87,200, the tax rate is 35 percent, and the unlevered cost of capital is 12 percent. What is the firm's cost of equity
Business
1 answer:
Dahasolnce [82]2 years ago
7 0

Answer:

14.27%

Explanation:

Unlevered value = [Expected earnings before interest and taxes × (1- tax rate)]/Unlevered cost of capital

Unlevered value = [$87,200 x (1- 0.35)]/0.12 = $472,333.33

Levered value = Unlevered value + (Tax rate × Debt market value)

Levered value = $472,333.33 + (0.35 x $227,000) = $551,783.33

Value of equity = Levered value - Debt market value

Value of equity = $551,783.33 - $227,000 = $324,783.33

Cost of equity = Unlevered cost of capital + [(unlevered cost of capital - coupon rate) × (Debt market value/Value of equity) × (1 - Tax rate)]

Cost of equity = 0.12 + [(0.12 - 0.07) × ($227,000/$324,783.33) × (1 - 0.35)] = 0.1427, or 14.27%

Therefore, the firm's cost of equity is 14.27%

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Seth borrows X from Tina and agrees to pay it back over 20 years using the sinking fund method. At the end of each year, Seth wi
guapka [62]

Answer:

The outstanding balance immediately after 12 years is $5,071.34.

Explanation:

Amount available in sinking fund account at the end of 12 years is given by:

( S ) = D*( (1+r)12 - 1 )/r

Where :

D = annual deposit at the end of every year = $ 400

r = interest earned on the depost = 3%

then:

S = 400 * ( ( (1+3%)12 - 1 ) / 3%)

   = $ 5,676.81

it is also mentioned that the sinking fund amount balance at the end of 20 years should be equal to repay the principal amount borrowed

so, sinking Fund at the end of 20 years would be :

T = D * ( (1+r)20 - 1 ) / r

   = 400 * ( ( (1+3%)20 - 1 ) / 3%)

  = $ 10,748.15

So, Seth has borrowed $ 10,748.15 from Tina which has to be paid at the end of 20 years.

At the end of 12 years his sinking fund balance would be equal to $ 5,676.81

As, he keeps paying interest regualarly every year at the end of 12 years the outstanding balance would be

= (Total amount borrowed) - (Sinking Fund at the end of 12 years)

= $ 10,748.15 - $ 5,676.81

= $ 5,071.34

Therefore, The outstanding balance immediately after 12 years is $5,071.34.

3 0
3 years ago
Lauren Barton, a single mother with three children, lived in Portland, Oregon. Cynthia VanHorn also lived in Oregon until she mo
AleksandrR [38]

The cengage learning for the mitigation is the difference between the agreed upon $72000 less what was earned from  the $25000 position that barton managed to obtain

<u>Explanation</u>:

Mitigation of damages:

In the case of barton v. vanhorn a court would consider barton's attempts at findings similar employment a reasonable step in mitigating her damages.

Under the doctrine of damage mitigation, a wrongfully terminated employee must look for other compartable employment, and subtract whatever you make from that job from what you request in damages.

Damages in the case would be the difference between the agreed upon $72000 less what was earned from  the $25000 position that barton managed to obtain.

6 0
3 years ago
A workgroup of 5 workers produced 500 units of output in a certain month working 22 days (8 hours per day).
Sedbober [7]

Answer:

The question continues ; b) Suppose that in the next month, the same work group produced 600 units but there were only 20 workdays in the month. Using the same productivity measures as before, determine the productivity index using the prior month as a base.

Explanation:

given 5 workers produced 500units working 8hrs/day for 22days

We calculate the output unit for each per worker for a month, a day and an hr;

Monthly output unit = 500/5 = 100 = LPR = Productivity ratios

daily output unit = 500/ 5x22 = 4.545 = LPR

hourly output unit = 500/ 22x8x5 = 0.568 = LPR

similarly for 600units produced by the same number but in 20days

Monthly output unit = 600/5 = 120 = LPR = Productivity ratios

daily output unit = 600/ 5x20 = 6.0 = LPR

hourly output unit = 600/ 20x8x5 = 0.75 = LPR

To calculate their productivity index ;

LPI = 120/100 = 1.2 = Monthly output unit

LPI = 6.0/4.545 = 1.32 = daily output unit

LPI = 0.75/0.568 = 1.32 = hourly output unit

5 0
3 years ago
A proposed new investment has projected sales of $832,000. Variable costs are 57 percent of sales, and fixed costs are $187,260;
miskamm [114]

Answer:

The projected net income of the proposed investment is $53,200.

Explanation:

3 0
2 years ago
Read 2 more answers
In the current period, Forward Co. started with the production of 21,000 units and completed 8,400 units, leaving 13,200 units i
____ [38]

Answer:

$2.51 per unit

Explanation:

The computation of the cost per equivalent unit is shown below:

But before that the equivalent units is to be computed

Equivalent units = units completed + equivalents units in ending inventory

= 8,400 units + (13,200 units × 42%)

= 13,944 units

Now

Cost per equivalent unit = cost incurred ÷ equivalent units

= $34,980 ÷ 13,944  units

= $2.51 per unit

4 0
3 years ago
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