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Murrr4er [49]
3 years ago
8

Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for the

company given the following additional information:
Bond Coupon Rate = 8% Bond Yield to Maturity = 6% Dividend, expected = $5 Price, common = $80
Growth Rate = 5% Corporate Tax Rate = 30 %
A) Less than 5.0%.
B) More than 5.0% and less than 6.25%.
C) More than 6.25% and less than 7.5%.
D) More than 7.5%.
Business
2 answers:
klemol [59]3 years ago
8 0

Answer:

As the WACC is more than 7.5%, option D is the correct answer.

Explanation:

The weighted average cost of capital or WACC is the cost of a firm's capital structure. To calculate the WACC, we multiply the weight of each component of the capital structure by the cost of that component. The components of capital structure can be one or all of the following namely debt, preferred stock and common stock.

The formula for WACC is,

WACC = wD * rD * (1-tax rate)  +  wP * rP  +  wE * rE

Where,

  • w represents the weight of each component
  • r represents the cost of each component
  • D, P and E represents debt, preferred stock and common stock respectively

First we need to determine the cost of debt and equity for this firm.

We use the market value of debt and thus, rate for the calculation of WACC.

The cost of debt will be its yield to maturity as it is the current rate or cost. Thus, rD will be 6%.

The cost of equity can be determined using the constant growth model of DDM 's formula for prcie today.

P0 = D0 * (1+g) / (r - g)

80 = 5 * (1+0.05) / (r - 0.05)

80 * (r - 0.05) = 5.25

80r - 4 = 5.25

80r = 5.25 + 4

r = 9.25 / 80

r = 0.115625 or 11.5625%

WACC = 0.5 * 0.06 * (1-0.3)  +  0.5 * 0.115625

WACC = 0.0788125 or 7.88125%

As the WACC is more than 7.5%, option D is the correct answer.

Daily2 years ago
0 0

DDDDDDDDDDDDDDDDD

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Explanation:

Hope it helps and have a good day

8 0
3 years ago
Read 2 more answers
The average price of personal computers manufactured by MNM Company is $1,200 with a standard deviation of $220. Furthermore, it
crimeas [40]

Answer:

The required probability is 0.066807

Explanation:

Given,

σ = 220

μ = 1200

The probability that a random selection of computer which will have the price of at least $1,530 is computed as:

P (X ≥ 1530 ) = 1 - P (X ≤ 1530)

= 1 - P ( X - μ / σ)

= 1 - P ( 1530 - 1200 / 220)

= 1 - P ( z ≤ 1.5)

= 1 - 0.933193

= 0.066807

Note: This 0.933193 value is taken from the z table.

8 0
2 years ago
In communicating the unique customer benefits of its various products to its target segments, thermos is defining its ________,
Elodia [21]
If this is the complete question,
In communicating the unique customer benefits of its various products to its target segments, Thermos is defining its ________, which is an important element of its overall _______ strategy.
A. target market; positioning
B. value proposition; positioning
C. value proposition; perceptual mapping
D. value proposition; segmentation
E. value proposition; targeting

The answer is.
In communicating the unique customer benefits of various product to its target segments. Thermos is defining its target market, as an important element of overall positioning strategy. According to Investopedia, it is defined as the market a company wants to sell its products and services to, and it includes a targeted set of customers for whom it directs its marketing efforts.
8 0
2 years ago
The checkbook of Vance Company had a balance of $2,210.55. The bank statement showed a balance of $4,918.18. The bank collected
Vikentia [17]

Answer:

$4,332.89

Explanation:

The adjusted reconciled checkbook balance will include:

    checkbook balance                                         $2,210.55

    + bank collect note                                         $2,000.00

    - fee for collecting the note                                 ($5.00)

    + earned interest                                                  $42.33

    + difference in recording a check $400 - $300 = $100

   <u> - banking service charge                                   ($14.99)  </u>

    total =                                                              $4,332.89

6 0
3 years ago
Hushovd Iron Works has collected the following data for its Thunderbolt line of​ products: Direct materials standard 15 pounds p
Hitman42 [59]

Answer:

The direct material quantity variance is $10,800 favourable.  (the options in the question are not correct).

Explanation:

The direct materials quantity variance represents a difference between what was actually produced and the standard or idea that should have been produced especially with regards to the use of direct materials.

To calculate material quantity variance

Step 1:Calculate the Standard Usage of Material

Formula= (Actual Units of Finished goods Purchased x Standard Price of Material per unit)

= 4,000 units x 15 Pounds

= 60,000 Pounds

This means the standard material usage is 60,000 pounds

Step 2: Now calculate the Direct Material Quantity Variance

Formula= (Standard Material Usage - Actual Material Usage) x The Standard Price per Unit of Material

= 60,000 pounds (computed in step 1) - 40,000 pounds (given in the question)

= 20,000 pounds x $0.54

=$10,800

Since the standard Material is higher than the actual material usage, it means that the answer is as follows;

The direct material quantity variance is $10,800 favourable.

Kindly note that the multiple options in the question above are for a different set of figures and a different question.

6 0
2 years ago
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