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forsale [732]
3 years ago
5

Suppose the Simmons Co's common stock has a beta of 1.37, the risk-free rate is 3.4 percent, and the market risk premium is 8.2

percent. The yield to maturity in the firm’s bonds is 7.6 percent and the debt-equity ratio is .45. What is the RWACC if the tax rate is 34 percent?
Business
1 answer:
notsponge [240]3 years ago
8 0

Answer:

WACC 0.1030590%

Explanation:

<u>First we use CAPM to solve the Cost of Equity</u>

Ke= r_f + \beta (r_m-r_f)  

risk free 0.034

market rate  

premium market market rate - risk free 0.082

beta(non diversifiable risk) 1.37

 

Ke= 0.034 + 1.37 (0.082)  

Ke 0.14634

<u />

<u>Then we calculate the WACC</u>

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

Ke 0.14634

Equity weight 0.55

Kd 0.076

Debt Weight 0.45

t 0.34

WACC = 0.14634(0.55) + 0.076(1-0.34)(0.45)

WACC 0.1030590%

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3 0
3 years ago
Roy Company manufactures a product in Departments A and B. Materials are added at the beginning of the process in Department B.
slamgirl [31]

Answer:

Number of equivalent units= 18,000

Explanation:

Giving the following information:

Conversion costs for Department B were 50% complete concerning the 6,000 units in the beginning work in process and 75% complete for the 8,000 units in the ending work in process. A total of 12,000 units were completed and transferred out of Department B during February.

With the information provided, we can calculate the number of equivalent units of the period.

Beginning work in process = 6,000*0.5= 3,000

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6 0
3 years ago
How do your clothing preferences differ from those of your
Trava [24]

Answer:

Is what you like different from other people?

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8 0
3 years ago
Windsor, Inc. just began business and made the following four inventory purchases in June:
alisha [4.7K]

Answer:

c. the average cost method.

Explanation:

Windsor INC. purchased inventory during the month of June as follows:

June 1 129 units at $890

June 10 172 units at $1340

June 15 172 units at $1440

June 28 129 units at $ 1140

and at the end of the period, there are 180 units on hand.

In order to get highest gross profit the closing sock should be the highest, accordingly the value of inventory at hand should as as follows under different method explain below:

Under FIFO method the inventory first enter into the enterprise is available for sale at first so the inventory of 180 units at end should be values at the last price mentioned in the question i.e $1140, therefore the value amounts to $1140*180 units=$205200

Under LIFO method, likewise the last entered inventory will be available for sale and the inventory at the end of period will be valued at the price at which the inventory first bought i.e $890, therefore the value amounts to 180 units*$890=$160200

Under Average cost method the effect of differential price is distributed over the quantity bough during a period so that the company remains in ineffective condition during the period from the price change

Average cost per unit= (129*$890 +172*$1340+ 172*$1440+129*$1140)/602 units

=$1229.29

and for the 180 units the value amounts to 180*$122.29=$221271.429

so, as per explanation given above, it is certain that the highest value will be in average cost method.

The correct option is - c. the average cost method.

5 0
2 years ago
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Pavlova-9 [17]

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Explanation:

6 0
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