Answer:
A) if the present value of the expected income stream associated with the investment is greater than the full cost of the investment project.
Explanation:
It is when the present value of the expected income stream associated with the investment is greater than the full cost of the investment project that the project is profitable. Most investments are undertaken with the aim of making profits.
The net present value can be used to determine if the present value of the expected income stream associated with the investment would be greater than the full cost of the investment project.
Inductive reasoning
Inductive reasoning works by combining and synthesising different parts of information into a holistic form. This works because understanding only the parts would lessen the understanding of a concept whereas integration is more insightful.
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Explanation:one moment
Answer:
Lewis CPAs:
service revenue: 60,000
Salaries expense: (40,000)
Net Income 20,000
Casual Clothing:
sales revenue 60,000
cost of goods sold: (32,000)
Gross Profit 28,000
operating expense (7,200)
Net Income 20,800
Explanation:
The net income is the difference between the revenues and expenses.
For Casual Clothing we also need to calcualte the gross profit which is, the difference between the sales revenue and the cost of the good sold.
After that, we subtract the other operating expense to arrive the net income
Answer:
a. WACC of the company before bond sale = Risk Free Rate + Beta * (Market return - Risk Free rate)
= 2% + 0.80 * 10%
= 2% + 0.80*0.1
= 2% + 8%
= 10%
b. Market value of Debt after Bond sales = $40,000,000
c. Market Value of equity = Current Value of Equity + Debt * tax rate - Debt
= 50*4,000,000 + 40000000*25% - 40000000
= 200000000 + 10000000 - 40000000
= $170,000,000
d. Weight of equity = Market value of equity / Total value of equity
= 170000000 / 200000000 + 10000000
= 170000000 / 210000000
= 0.80952381
= 81%
e. Cost of debt after bond sale = YTM * (1 - tax Rate)
= 12% * 0.75
= 0.09
= 9%
f. Cost of equity after bond sale = Risk Free Rate + Beta * (Market return - Risk Free rate)
= 2% + 1.20 * 10%
= 0.02 + 0.12
= 0.14
= 14%
g. Adjusted WACC = weight of debt * Cost of debt + weight of equity * cost of equity
= 19% * 9% + 81% * 14%
= 0.0171 + 0.1134
= 0.1305
= 13.05%