Answer: $690,044
Explanation:
First calculate WACC.
Total capital = 10 + 8 = $18 million
WACC = (Weight of debt * after-tax cost of debt) + (weight of equity * cost of equity)
= (8/18 * 3%) + (10/18 * 15%)
= 9.67%
Using the WACC, find the present value of the cashflows for the next 5 years. This will be an annuity.
= 180,500 * (1 - (1 + r) ^-n)/r
= 180,500 * ( 1 - ( 1 + 9.67%) ^ -5)/9.67%
= $690,044.67
= $690,044
They should pay no more than this present value.
Answer:
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Explanation:
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Answer:
Explanation:
There are primarily two types of costs, i.e. variable costs and the fixed costs. The variable cost is the cost which changes when the level of production changes, whereas the fixed cost is the cost which remains constant whether the level of output changes or not.
The variable costs also include indirect products, indirect labor and manufacturing equipment, and the fixed costs include taxes and depreciation costs.
The period cost is that cost which is related to the selling and admin expenses plus it is not capitalized.
Whereas the product cost is a mix of direct labor, direct material and the manufacturing overhead
So, the categorization is shown below:
1. Hamburger buns in a Wendy's outlet. = variable and product cost
2. Advertising by a dental office. = Fixed and period cost
3. Apples processed and canned by Del Monte. = variable and product cost
4. Shipping canned apples from a Del Monte plant to customers. = variable and period cost
5. Insurance on a Bausch & Lomb factory producing contact lenses. = fixed and product cost
6. Insurance on IBM's corporate headquarters.= fixed and period cost
