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Tomtit [17]
3 years ago
10

Jane is arguing with Joan about how much cash on hand their small retail outlet needs as they prepare their cash budget. Jane fe

els that with the Christmas season coming up, their busiest time, they need more cash handy. Joan feels they don't because their sales volume will be up significantly. Jane and Joan are discussing which step of the cash budgeting process
Business
1 answer:
eimsori [14]3 years ago
6 0

Answer: Determination of minimum cash balance required.

Explanation: In the give case, Jane and Joan have different opinions regarding the amount of cash balance they require for effectively operating their business, thus, we can say they are determining the adequate amount of cash balance required.

In this step, the operation in the past and the expected revenues in the future are taken into consideration for the budget making process.

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a.

WACC is calculated as –

WACC = (Weight of common stock X Cost of common stock) + (Weight of preferred stock X Cost of preferred stock) + (Weight of debt X After tax cost of debt)

WACC = (64% X 13.4%) + (9% X 6.4%) + (27% X ((1- 40%)*8.1%))

WACC = 10.46%

b. After tax cost of debt is calculated as –

After tax cost of debt = (1- tax rate) X cost of debt pre-tax

After tax cost of debt = ((1- 40%)*8.1%))

After tax cost of debt = 4.86%

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