1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Alenkasestr [34]
2 years ago
9

Hatch Corporation's target capital structure is 40% debt, 50% common stock, and 10% preferred stock. Information regarding the c

ompany's cost of capital can be summarized as follows: The company's bonds have a nominal yield to maturity of 7%. The company's preferred stock sells for $40 a share and pays an annual dividend of $4 a share. The company's common stock sells for $25 a share and is expected to pay a dividend of $2 a share at the end of the year (i.e., D1 = $2.00). The dividend is expected to grow at a constant rate of 7% a year. The company has no retained earnings. The company's tax rate is 40%. What is the company's weighted average cost of capital (WACC)?
Business
1 answer:
Evgesh-ka [11]2 years ago
3 0

Answer:

WACC = 0.1018 or 10.18%

Explanation:

The WACC or Weighted average cost of capital is the cost of a firm's capital structure that can be made of one or all of the following components namely debt, preferred stock and common equity.

The formula to calculate is as follows,

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

Where,

  • w represents the weight of each component in capital structure
  • r represents the cost of each component
  • D, P and E represents debt, preferred stock and Common Equity respectively.

Cost of bond = 7%

Cost of preferred stock = 4/40  =  10%

<u>Cost of Common Equity : </u>

25 = 2  / (r - 0.07)

25 * (r - 0.07) = 2

25r - 1.75 = 2

25r = 2 + 1.75

r = 3.75 / 25

r = 0.15 or 15%

WACC = 0.4 * 0.07 * (1 - 0.4)  +  0.1 * 0.1  +  0.5 * 0.15

WACC = 0.1018 or 10.18%

You might be interested in
(Chapter Supplement) Irish Industries purchased a machine for $65,000 and is depreciating it with the straight-line method over
denis-greek [22]

Answer:

$4,500

Explanation:

depreciation expense

= [revised cost of asset - salvage value]/[remaining life of the assets]

=  [$39,000 - $3,00]/[8 years]

= $4,500

Therefore, The Depreciation expense for Year 6 is $4,500.

3 0
3 years ago
The income elasticity of demand for peanut butter is 0.1. From this, we know that peanut butter is a(n) __________ because _____
musickatia [10]

Answer:

Option B:

inferior good; elasticity is negative

Explanation:

The income elasticity of demand is a measure of the rate at which a particular commodity is demanded, even after there is a change in the real income of the consumers.

It is a known fact that for inferior goods, once the real income of the consumers increases there is a higher tendency for them to switch to other premium commodities. Such goods are said to have a negative elasticity.

The income elasticity of demand can be calculated with this formula

percentage change in quantity demanded / percentage change in income.

If this gives a value that is less than 1, it means that the percentage change in the quantity of goods demanded is actually less than the percentage change in the income level of the consumers. Hence, the good is an inferior good. This is because when the consumers are earning more, they buy less of the product.

6 0
3 years ago
When a company pays a dividend, it isn't as simple as getting a paycheck from one's employer. There are several critical dates i
belka [17]

Answer: 1. Declaration Date

2. Payment Date

3. Holder-of-record date

4. Ex-dividend date

Explanation:

1. On the Declaration Date, the company's Director announces that they will pay a dividend as well as the amount of the dividend. This is recorded in the books by crediting it to Dividends payable.

2. On Payment day the dividends are disbursed amongst shareholders. Cash Account is credited and Dividends Payable is debited.

3. The Holder-of-record day is the day the company notes who the owners of it's stock are so that they may receive the dividend.

4. On the Ex-dividend date which is usually 2 days before the record date, any stock bought on or after this date will.not receive any Dividend payment.

6 0
3 years ago
When the cost method is used to account for a stock investment the carrying value of the investment is affected by
Goshia [24]

Answer: b. neither the earnings nor the dividends of the investee.

Explanation:

When the cost method is used to account for a stock investment, it means that in the books, the stock is to be recorded at the price it was purchased for.

This means that even if earnings and dividends accrue on the stock, it is not to change in value but should stay being recorded at the price it cost to acquire.

3 0
2 years ago
A supervisor finds the mean number of miles that the employees in a department live from work. He finds and . Which statement mu
MrMuchimi

Complete Question:

A supervisor finds the mean number of miles that the employees in a department live from work. He finds x=2.9 and s=3.6. Which statement must be true?

z376 is within 1 standard deviation of the mean.

z37 is between 1 and 2 standard deviations of the mean.

z37 is between 2 and 3 standard deviations of the mean.

z37 is more than 3 standard deviations of the mean.

Answer:

z37 is between 2 and 3 standard deviations of the mean.

Explanation:

Standard deviation is a way of measuring of how much the value sample varies or disperses. A low standard deviation means that the values are near the mean value of the set, whereas a high standard deviation implies that the values are distributed over a wider range.

In reasonably average data sets, the values reflect about 68 per cent of the sample within 1 standard deviation from the mean; about 95 per cent in 2 standard deviations; and about 99.7 per cent within 3 standardized deviations.

6 0
3 years ago
Read 2 more answers
Other questions:
  • To effectively run a business, it is necessary to:
    9·1 answer
  • Some analysts use the short-run and long-run effects on the aggregate demand–aggregate supply model to argue that expansionary m
    6·1 answer
  • Shelby's new job with the federal government provides a comfortable income and a fairly stable income. she would like to buy a n
    6·1 answer
  • Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,0
    6·1 answer
  • Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $62,000 cash immediately
    8·1 answer
  • Give connotative meaning of hail​
    11·1 answer
  • The shoe department accounts for 2,700 square feet in a store and achieved sales per square foot of $800. Calculate the total sa
    7·1 answer
  • What is your expectation of this subject industrial psychology
    6·1 answer
  • Most financial securities have some level of ________ risk. Multiple Choice unsystematic asset-specific diversifiable industry s
    12·1 answer
  • The marginal benefit of a taco is measured by:
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!