1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
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%

You might be interested in
What is the current face value of a $1,000 Treasury inflation-protected security if the reference CPI is 203.19 and the current
Stella [2.4K]

Answer:

$1,011.22

Explanation:

Price = $1000 x (205.47/203.19)

$1000× 1.01122= $1,011.22

Therefore the current face value is $1,011.22

3 0
3 years ago
When a person is developeing a plan, he must understand the or what he is selling.
9966 [12]

Answer:

Product

Explanation:

When a person is developing a plan, he must understand the product he is selling.

He can only develop an effective plan if he knows the complete dimensions of the product at hand. An incomplete understanding would lead to developing an ineffective plan that might create the wrong perception of it in the minds of the consumer and eventually effect the sales negatively or maybe engage the wrong market in the process.

4 0
3 years ago
An unfavorable balance of trade occurs when the value of.
zloy xaker [14]

An unfavorable balance of trade occurs when the value of a country's import exceeds the export.

<h3>What is an import?</h3>

It should be noted that an import simply means the goods and services that are brought into a country from another country.

In this case, unfavorable balance of trade occurs when the value of a country's import exceeds the export.

Learn more about trade on:

brainly.com/question/17727564

#SPJ1

8 0
2 years ago
3m involves its customers in the process of developing new products. in this way, it can benefit from current customers' insight
pishuonlain [190]

I guess the correct answer is Product development

3M involves its customers in the process of developing new products. In this way, it can benefit from current customers' insights and develop new products that will meet these customers' needs. 3M is pursuing a Product development growth strategy.

3 0
3 years ago
Read 2 more answers
What might happen to a population of animals if one or more of the limiting factors were no longer limiting?
Anuta_ua [19.1K]

In the natural world, limiting factors like the availability of food, water, shelter and space can change animal and plant populations. Other limiting factors, like competition for resources, predation and disease can also impact populations. ... Some changes may cause a population to increase.

4 0
2 years ago
Other questions:
  • As Nick walks into Mesa Cycles, a local bike shop, he feels at ease owing to the decent lighting and soothing background music o
    15·1 answer
  • Which is a short-term consequence of making a late payment on your bill
    9·1 answer
  • ​in a simple economy of five producers and five consumers, there would be ____ transactions possible without an intermediary and
    5·1 answer
  • ___________is a conductor installed on the supply side of a service or separately derived system to ensure the required electric
    7·1 answer
  • Brand auditing
    5·1 answer
  • A​ firm's operating cash flow​ (OCF) is defined as​ ________. A. gross profit minus operating expenses B. EBIT times one minus t
    11·1 answer
  • Bodin Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inven
    10·1 answer
  • Jack and Jill are the only two residents in a neighbourhood, and they would like to hire a security guard. The value of a securi
    8·1 answer
  • According to the path-goal theory, the participative style is recommended when group members are performing repetitive tasks.
    8·1 answer
  • The u.s. government may require that apparel imported into the united states should use u.s. cotton, or use a certain amount of
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!