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iren2701 [21]
3 years ago
7

Auto Parts is considering a merger with Car Parts. Car Parts market-determined beta is 0.9, and the firm currently is financed w

ith 20% debt, at an interest rate of 8%, and its tax rate is 25%. If Auto Parts acquires Workman, it will increase the debt to 60%, at an interest rate of 9%, and the tax rate will increase to 35%. The risk-free rate is 6% and the market risk premium is 4%. What will Car Parts required rate of return on equity be after it is acquired?
Business
1 answer:
kvasek [131]3 years ago
5 0

Answer: 9.7%

Explanation:

Given Data

Rf = Risk free return = 6%,

Rpm = Risk premium = 4%,

Beta = 0.9

Wd = Debt = 20%

rd = cost of debt = 8%

We = equity = 80%

Re = Rf + Beta (Rpm)

= 0.06 +0.9 (0.04)

= 0.096 * 100

= 9.6%

Unlevered Equity Cost ;

ReU= Wd × rd + We × re

= 0.20 × 8% + 0.80 × 9.6%

= 9.28%

Levered Equity Cost:

New Debt = 60%,

New Equity = 40%,

New rd = 9%

ReL = ReU + (ReU - rd) (D ÷ E)

= 9.28% + (9.28% - 9%) (0.60 ÷ 0.40)

= 0.097 * 100

= 9.7%

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insens350 [35]

The correct alternative regarding tax revenue:

<u>B-Personal income tax is currently the largest source of government revenue in South Africa.</u>

<u>Direct </u><u>Taxes</u>

  • it is levied on earnings and activities conducted.
  • the burden of tax cannot be shifted in case of direct tax.
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  • it is paid after the income reaches in the hands of the taxpayer
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<u>Indirect </u><u>Taxes</u>

  • it is levied on product or services.
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  • It is paid by way of one man or woman however he recovers the same from another person i.e. person who actually bear the tax ultimate consumer.
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5 0
2 years ago
Goldin Corporation currently pays its salesperson a flat salary of $5,000 per month and is considering paying him $20 per unit i
Naddik [55]

Answer:

The net operating income will c. increase by $7,000

Explanation:

The formula to calculate net operating income  is =

Gross income - Operating expenses

If  Sales are equal to 200 units  and the payment for a salesperson is

a flat salary of $5,000

Gross income = 200  * $80 = $16,000

and

Operating expenses = $5,000

so

Net operating income = $16,000  - $5,000 = $11,000

If  we rise the Sales to 300 units then the payment for the salesperson will be 20$ * 300 = $6,000.

Gross income = 300  * $80 = $24,000

and

Operating expenses = $6,000

so

Net operating income = $24,000 - $6,000 = $18,000

$18,000 -  $11,000 = $7,000

6 0
3 years ago
Rosario Company, which is located in Buenos Aires, Argentina, manufactures a component used in farm machinery. The firm’s fixed
julia-pushkina [17]

Answer:

- BEP in unit: 4,000 units;

- In case fixed cost increases by 10%, New BEP in unit: 4,400 units.

- Net income: 1,000,000p.

- BEP in units if sale price to decrease : 8,000 units => Price change should not take place as it moves the company from making 1 million peso profit to a loss as sales in units (1,200 + 5,000 =6,200) is lower than break-even point ( 8,000 units).

Explanation:

Please find detailed calculations as below:

- BEP in unit is calculated as Fixed cost/ Margin earned by one product = 4,000,000/(3,000 - 2,000) = 4,000.

- New BEP in unit is calculated as  New Fixed cost/ Margin earned by one product = (4,000,000 x 1.1)/(3,000 - 2,000) = 4,400.

- Net income: Sales - fixed cost - variable cost = 3,000 x 5,000 - 4,000,000 - 2,000 x 5,000 = 1,000,000 p

- BEP in units if sale price to decrease: Fixed cost/ Margin earned by one product = 4,000,000/(2,500 - 2,000) = 8,000.

4 0
3 years ago
explain the law of increasing opportunity costs using the example of economic growth and a production possibilities curve.
Ivahew [28]

The law of increasing opportunity cost tells us that, as the economy moves along the production possibilities curve in the direction of more of one good, its opportunity cost will increase.

<h3>What is economy ?</h3>

An economy is a region where products and services are produced, distributed, traded, and consumed. It is generally understood to be a social domain that places an emphasis on the behaviors, discourses, and tangible manifestations connected to the creation, utilization, and management of finite resources.

One's culture, values, education, technological advancement, history, social organization, political structure, legal system, and natural resources are all major determinants of an economy's processes. These elements determine the parameters and conditions under which an economy operates in addition to providing background and content. In other words, the economic realm is a social domain made up of connected human behaviors and exchanges that cannot exist independently.

Individuals, companies, organizations, or governments all qualify as economic actors.

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3 0
1 year ago
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Dominik [7]

Answer:

The correct statements are A, B and C

Explanation:

Accounting plays a important role while running a business as it helps the company in keeping a track of expenditures as well as income, it ensures the statutory compliance.

Provide the owners, managers, investors and creditors reliable information so that could take the decisions.

It summarizes the information and help in conveying the information related to the firm activities.

It records as well as communicate the information regarding the business.

7 0
3 years ago
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