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irakobra [83]
3 years ago
10

Haslem, Inc. has 3 million shares of common stock outstanding, 1 million shares of preferred stock, and 80,000 bonds. The common

stock is selling for $50 per share, the preferred stock is selling for $33 per share, and the bonds are 25 year, 8.5%, $1,000 bonds that are presently selling for $1,080 (semiannual interest). The preferred stock pays an annual dividend of $2.70, and the common dividend paid in the year just ended was $2.40. The dividend on the common stock is projected to grow at a rate of 6% indefinitely
Business
1 answer:
Marysya12 [62]3 years ago
4 0

Answer:

8.37%

Explanation:

WACC = [E / (D + E)](Re) + [D / (D + E)](Rd)(1 - T)

E = market value of equity

D = market value of debt

Re = cost of equity

Rd = cost of debt

T = taxes

  • E = 3,000,000 common stocks x $50 = $150,000,000
  • DP = 1,000,000 preferred stock x $33 = $33,000,000
  • DB = 80,000 bonds x $1,080 = $86,400,000
  • Re = (dividend / stock price) + growth rate = ($2.4 / $50) + 6% = 0.048 + 6% = 0.108 or 10.8%
  • Rdp = $2.70 / $33 = 8.18%
  • Rdb = $85 / $1,080 = 7.87%
  • T = 33%

WACC = [E / (D + E)](Re) + [DP / (D + E)](Rdp)(1 - T) + [DB / (D + E)](Rdb)(1 - T)

since the numbers are too large, I will divide the calculation into three parts:

  • [E / (D + E)](Re) = [$150,000,000 / ($119,400,000 + $150,000,000)](10.8%) = ($150,000,000 / $269,400,000) x 10.8% = 0.5568 x 10.8% = 0.0601 or 6.01%
  • [DP / (D + E)](Rdp)(1 - T) = ($33,000,000 / $269,400,000) x 8.18% x (1 - 33%) = 0.1225 x 8.18% x 67% = 0.0067 or 0.67%
  • [DB / (D + E)](Rdb)(1 - T) = ($86,400,000 / $269,400,000) x 7.87% x 67% = 0.0169 or 1.69%

WACC = 6.01% + 0.67% + 1.69% = 8.37%

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<h3><u>What is Marginal Productivity?</u></h3>
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Brief Exercise 12-06Flint Corporation owns a patent that has a carrying amount of $290,000. Flint expects future net cash flows
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Answer:

Debit Impairment loss account   $50,000

Credit Intangible asset account   $50,000

Being entries to recognize impairment loss on patent.

Explanation:

According to IAS 36, an asset is impaired when the carrying amount of the asset is more than the recoverable amount. The recoverable amount is the higher of the fair value and the future net cash flow from the assets.

Given;

Carrying amount = $290,000

Expected future net cash flows from this patent = $240,000

Fair value of the patent = $133,000

The recoverable amount = $240,000 (as this is higher than the fair value)

Impairment is the difference between the carrying amount and the recoverable amount.

Impairment = $290,000 - $240,000

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Entries required

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Credit Intangible asset account   $50,000

Being entries to recognize impairment loss on patent.

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