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3 years ago

The firm's target capital structure should do which of the following?

Business

1 answer:

inysia [295]3 years ago

8 0

Answer:

e. Minimize the weighted average cost of capital (WACC)

Explanation:

A: Earnings per share is linked to the stockholders' only, therefore, it cannot achieve the target capital structure. It is a wrong statement.

B: Minimizing the cost of equity is related to the equity only, so, it is also a false statement.

C: Cost of debt is only related to liabilities. It cannot minimize the total target capital structure. Therefore, it cannot be an answer.

D: It is out of question because target capital structure cannot obtain the bond rating.

E: Since weighted average cost of capital is the combination of debt and equity capital's cost, it can be minimized with the firm's target capital structure.

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You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% a

astra-53 [7]

Answer:

amount to be investment in risky portfolio = $405

amount invest in security x = $243

amount invested in security Y = $162

Explanation:

given data

investing = $1,000

Treasury bills = 5%

optimal weights of X = 60 %

optimal weights of Y = 40 %

expected rate of return x = 14%

expected rate of return y = 10%

solution

we know that

weight return return from risky port

X 60 % 14 % 8.4 %

Y 40 % 10 % 4%

total 12.4 %

so here

return from risky portfolio is = 12.4 %

and

return from risk free investment = 5 %

so 'we consider here investment in risky portfolio = x

so investment in risk free = 1 - x

so we can say that

12.4 % × x + 5 % × (1-x) = 8 %

solve we get

x = 0.405

so investment in risky portfolio = 0.405

so investment in risk free =0.595

and

amount to be investment in risky portfolio = $1000 × 0.405

amount to be investment in risky portfolio = $405

and

amount invest in security x = $405 × 60%

amount invest in security x = $243

and

amount invested in security Y = $405 × 60%

amount invested in security Y = $162

4 0

4 years ago

Tim's Tools just issued a dividend of $2.22 per share on its common stock. The company is expected to maintain a constant 2.8 pe

LekaFEV [45]

Answer:

expected return = 12.03%

Explanation:

using the dividends growth model we can calculate the required return

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

2.22 x 1.03 = 2.2866

We must remember that the gordel model is used with next year dividends

2.2866(return - 0.023) = 19

2.2866/19 +0.023 = return

return = 12.03%

4 0

3 years ago

Topco owns 60% of the voting common stock of Midco and 40% of the voting common stock of Botco. Topco wishes to gain control of

aleksandrvk [35]

Answer:

A. 11 %

Explanation:

Given that TopCo owns 40% of Botco, in order to gain control botco, it must either directly or/and indirectly have more than 50% of botco voting stock. Meaning it must acquire more than 10% extra in order to gain control. Thus, if Midco that topco have 60% of is able to acquire 11% of Botco, then topco will be able to have 51% control over botco with 40% coming directly and 11% coming indirectly through it 60% control over Midco.

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ivolga24 [154]

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