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Ann [662]
4 years ago
12

Sanford Company currently has 15% of its market value in debt and 85% in common stock, with no preferred stock. Its debt has a c

oupon rate of 7%, a yield-to-maturity of 6%, and a corporate tax rate of 35%. The expected market return is 11% and the risk-free rate is 3%. Sanford has a Beta of 0.90.
Business
1 answer:
devlian [24]4 years ago
4 0

Answer:

WACC is 9.35%

Explanation:

In order for us to compute the weighted average cost of capital, we have to first find the cost of equity (Ke) and the cost of debt (Kd)

1. Ke can be found by using CAPM - Capital Asset Pricing Model.

CAPM Formula: Ke = Rf + b(Rm-Rf)

where Rf = Risk free rate; Rm = Return expected of the market; b = beta

Therefore = Ke = 3% + 0.9(11%-3%) = 10.2%

2. Kd = Coupon rate (1 - tax rate), coupon rate is 7%, tax rate is 35%

therefore Kd = 7 (1-0.35) = 4.35%

Lastly we apply the WACC Formula which is Ke* (equity value/Total value of equity and debt) + kd*(debt value/Total value of equity and debt)

We are not given the values of equity and debt, bur we are given the fractions; we will use the fractions.

Therefore: Ke* (equity value/Total value of equity and debt) + kd*(debt value/Total value of equity and debt) = (10.2%*85%)+(4.35%*15%) = 9.35%

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Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on accou
Mandarinka [93]

Answer:

The discount will not affect the net income as no gain is recognize nor expense.

the cash flow statemetn will decrease by 3,960 which is the cash used.

the balance sheet after the series of trasnactions, will show inventory for 3,960

Cash would have decrease by 3,960

No change on equity.

Explanation:

inventory 5,000 debit

  accounts payable 5,000 credit

account payable 1,000 debit

  inventory                   1,000 credit

Account payable 4,000 debit

     Inventory                     40 credit

     Cash                       3,960 credit

3 0
4 years ago
A business pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at th
algol [13]

Answer:

debit Salaries and Wages Expense, $24,000; credit Salaries and Wages Payable, $24,000.

Explanation:

The journal entry is shown below:

Salaries and Wages Expense A/c Dr $24,000

   To Salaries and Wages Payable $24,000

(Being salary and wages is adjusted)

The computation is shown below:

Five day salary = $30,000

Per day salary = $30,000 ÷ 5 days = $6,000

Now Monday to Thursday salary i.e 4 days salary = $6,000 × 4 days = $24,000

3 0
4 years ago
You purchase a bond with a coupon rate of 8.6 percent, a par value of $1,000, semiannual coupons, and a clean price of $860. If
arlik [135]

Answer:

The answer is $881.5

Explanation:

Solution

Given that:

The accrued interest is  refers to the payment (coupon) for the time with the fraction of the time that has exceed since the last coupon payment.

Since we have a semiannual coupon bond, the coupon payment for six months is 1/2 of the annual coupon payment.

Three months has exceeded since the last coupon payment.

So the accrued interest for the bond is given below:

Accrued Interest = $86/2 * 3/6

= $21.5

Thus

The price (dirty) = Clean Price + Accrued Interest

= $860 + $21.5

= $881.5

Therefore the invoice price is $881.5

4 0
4 years ago
Assessing opportunity cost involves
Kruka [31]

The act of assessing opportunity cost involves making choices and dealing with consequences.

<h3>What is an opportunity cost?</h3>

This refers to the most desirable alternative given up as the result of a decision.

It is also the concept that cost of something that has to be given up to enjoy something better.

Hence, the act of assessing opportunity cost involves making choices and dealing with consequences.

Read more about opportunity cost

brainly.com/question/481029

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7 0
2 years ago
1. Tells whether a company can pay all its current liabilities if they become due immediately 2. Measures a company's success in
kirill [66]

Answer: Incomplete question.

Match the following terms to there definition.

Explanation:

1. Tells whether a company can pay all its current liabilities if they become due immediately - Quick Ratio

2. Measures a company's success in using assets to earn income - Return on Assets

3. The practice of comparing a company with other companies that are similar - Benchmarking

4. Indicates how rapidly inventory is sold - Inventory turnover

5. Shows the proportion of a company's assets that is financed with debt - Debit Ratio

6. Tells the percentage of a stock's market value that the company returns to stockholders annually as dividends - Dividend Yield

7. Measures a business's ability to pay interest on its debt - Interest coverage ratio

8. Measures a company's ability to collect cash from credit customers -

Account Receivable Turnover

3 0
3 years ago
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