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Firlakuza [10]
3 years ago
7

Gnomes r us is considering a new project. the company has a debt–equity ratio of .78. the company's cost of equity is 14.6 perce

nt, and the aftertax cost of debt is 7.9 percent. the firm feels that the project is riskier than the company as a whole and that it should use an adjustment factor of +2 percent. what is the company's wacc?
Business
1 answer:
kodGreya [7K]3 years ago
3 0

To look for the company’s WACC for the level of danger in the project. A debt-equity ratio of 0.78 suggests a weight of debt of 0.78/1.78 and a weight of equity of 1/1.80, so the company’s WACC is:

WACC = (0.78/1.78) (0.0780) + (1/1.78) (0.1460)

= 0.03417978 + 0.08202247

WACC = 0.1162 or 11.62%

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Answer:

The correct answer is A.

Explanation:

Giving the following information:

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What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? what would its reaction do
denis-greek [22]

A favorable supply shock is a sudden increase in supply that makes the short-run aggregate supply curve (SRAS) shift to the right, average price levels go down and real GDP also shifts to the right. In this case, average price levels go down as shown in the figure below from p1 to p2 SRAS shifts right.

This may make create deflation in an economy and discourage new producers to enter the market, to bring back inflation, the central bank may reduce interest rates and decrease the money supply in the market, and in short, will follow expansionary monetary policy. This will make people demand more and hence as aggregate demand shifts to correct average price levels may again go up. This move will create new jobs in the market as aggregate demand will increase in the short term.

A supply shock is an event that causes unexpected cost increases or production disruptions. This shifts the short-run aggregate supply curve to the left, boosting inflation and lowering real domestic production.

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2 years ago
Tiptoe shoes, had annual revenues of $185,000, expenses of $103,700, and paid dividends of $18,000 during the current year. The
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<u>Calculation of ending retained earnings balance after closing:</u>

The balance in ending retained earnings after closing can be calculated as follows:

Balance in retained earnings account before closing $297,000

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Ending retained earnings balance after closing = $360,300

Hence, The balance in ending retained earnings after closing is <u>$360,300</u>






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