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Anni [7]
3 years ago
6

Palencia Paints Corporation has a target capital structure of 25% debt and 75% common equity, with no preferred stock. Its befor

e-tax cost of debt is 11%, and its marginal tax rate is 40%. The current stock price is P0 = $29.00. The last dividend was D0 = $2.50, and it is expected to grow at an 8% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places. rs = 17.31 % WACC = 14.61 %
Business
1 answer:
Ivenika [448]3 years ago
7 0

Answer:

Ke 0.173103448

WACC 14.63250%

Explanation:

From the gordon model we determinate Ke

\frac{divends}{return-growth} = Intrinsic \: Value

\frac{divends}{Price} = return-growth

\frac{divends}{Price} + growth = return

D1 2.7 (we are given with D0 so we multiply by (1+g) to get D1

P 29

g 0.08

$Cost of Equity =\frac{2.7}{29} +0.08

Ke 0.173103448

Now we use this value to determinate the WACC

WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})

Ke 0.1731

Equity weight 0.75

Kd 0.11

Debt Weight 0.25

t 0.4

WACC = 0.1731(0.75) + 0.11(1-0.4)(0.25)

WACC 14.63250%

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Answer:

top down management

Explanation:

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4 0
2 years ago
Prepare a bank reconciliation as of October 31 from the following information:
kakasveta [241]

Answer:

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Balance as per bank          $350      Balance as per books    $806

Add: Late deposit               $433      Less: Returned checks   $80

Less: Outstanding check    $66       Less: Error recordings    $9

          ($24+$42)                                           ($65-$56)

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3 years ago
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Inventory records for Dunbar Incorporated revealed the following: Date Transaction Number of Units Unit Cost Apr. 1 Beginning in
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Answer:

$816

Explanation:

Calculation for Dunbar Incorporated Ending inventory

Formula for Ending inventory units using FIFO method:

Ending inventory units = Beginning balance + Purchase -sales

Leg plug in the formula

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Calculation for Ending inventory

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Answer:

2. (i) demand-side; (ii) both; (iii) supply-side; (iv) supply-side; (v) both

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a. $1,000 per person tax reduction  ⇒ focus on aggregate demand (more money for consumers to spend)

b. a 5% reduction in all tax rates  ⇒ focus on both aggregate demand and supply (more money for consumers and suppliers)

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