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Svetach [21]
3 years ago
12

Peter's Audio Shop has a cost of debt of 7%, a cost of equity of 11%, and a cost of preferred stock of 8%. The firm has 104,000

shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%. What is the weighted average cost of capital for Peter's Audio Shop? Group of answer choices 9.45%
Business
1 answer:
hjlf3 years ago
7 0

Answer:

Explanation:

First, find the market values of each;

Equity = 104,000*20 = $2,080,000

Preferred stock =40,000*34 = $1,360,000

Debt = 1.02*500,000 = $510,000

TOTAL = 2,080,000 + 1,360,000 + 510,000 = 3,950,000

WACC = wE*rE + wP*rP + wD*(rD(1-tax))

wE =weight of equity = 2,080,000/3,950,000 = 0.527

rE= cost of equity = 11% or 0.11

wP= weight of Preferred stock = 1,360,000/3,950,000 = 0.344

rP =cost of preferred stock = 8% or 0.08

wD= weight of debt = 510,000/3,950,000 = 0.129

rD = cost of debt = 7% or 0.07

Therefore ,

WACC = (0.527 * 0.11) + (0.344 * 0.08) +(0.129 * (0.07(1-0.34))

WACC =0.05797 + 0.02752 + 0.0059598

WACC= 0.0914498 OR 9.14%

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Answer:

Service profit Chain model

Explanation:

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Cheers

7 0
3 years ago
Meili's employer distributes checks at the end of each quarter, representing an equitable portion of 5 percent of the company's
Goryan [66]

Answer:

profit sharing

Explanation:

profit-sharing plan can be regarded as retirement plan which is designed to let an employee to have a share in the profits of a firm. In this particular plan some percentage of the profit made by the company,firm can be received by the employee using the quarterly or annual earnings of the employee as the basis.

6 0
2 years ago
What is financial literature​
Vanyuwa [196]
<h3>Hello there!</h3>

Your question asks what is financial literature.

<h3>Answer: Knowledge and skills that someone has in making good decisions with the financial sources that they have.</h3>

When you look at the word "financial literature", you can see that it has the word "financial" in it, so that means that it's going to be based off of finance.

Financial literature is knowledge and skills someone has in finance. What this means is that someone has knowledge on how finance works and know ways to stay financially stabled. The knowledge that someone could have is how money works, how to manage the money, and how to turn the money they already have into more money.

The knowledge that an individual could attain from financial literacy could help them in the long run, in which it's highly recommended to learn financial literacy, due to the fact that tons of people are going into debt because they don't know how to manage their finances.

To sum it up, people who know financial literacy would have a high chance in knowing how to manage their money and stay out of debt.

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8 0
3 years ago
Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How mu
Stels [109]

Answer:

$8000 (increased)      

Explanation:

Given:

Current sales = $600,000

Variable cost = 80% of Sales = $600,000 x 80% = $480,000

Fixed cost = $130,000

Computation of current Operating Income :

= Current sales - Variable cost - Fixed cost

= $600,000 - $480,000 - $130,000

Net Income = -$10,000

Computation of Operating Income(After new sales) :

= New sales - New Variable cost - Fixed cost

= ($600,000 + $40,000) - 80% of ($600,000 + $40,000) - $130,000

= $640,000 - $512,000 - $130,000

Net income after new sales = - $2,000

Change in income = Net income after new sales - Net Income before new sales

= -$2,000 - (-$10,000)

= $8000 (increase)      

5 0
3 years ago
M1 money growth in the u.s. was about 16% in 2008, 7% in 2009, and 9% in 2010. over the same time period, the yield on 3-month t
posledela
M1 money growth in the US was about 16% in 2008, 7% in 2009 and 9% in 2010. Over the same time period, the yield on 3-month Treasury bills fell from almost 3% to close to 0%. Given these high rates of money growth, why did interest rates fall, rather than increase? What does this say about the income, price level and expected-inflation effects?
Higher money growth (increase in the money supply) should have the following effects:
Liquidity effect indicates that this growth in money should shift money supply to the right, which should decrease the interest rate.
Income effect indicates that the growth in money should increase income levels, which should increase the demand for money and shift the demand curve to the right. This should increase the interest rate.
The price level effect indicates that the growth in money should increase price levels, which should increase the demand for money and shift the demand curve to the right. This should also increase the interest rate.
During this time period, unemployment was high, economic growth was weak and policymakers were more concerned with deflation than they were with inflation.
Therefore, the expected inflation effect was almost non-existent (due to the concerns with deflation) and the liquidity effect dominated all other effects, which made interest rates fall.
<span>This is illustrated with the first graph on slide 32 of the Theory of Money Powerpoints.</span>
7 0
3 years ago
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