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Alenkasestr [34]
3 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]3 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%

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What must be the first cost of Alternative B to make the two alternatives equally attractive economically at an interest rate of
Gelneren [198K]

Answer:

The answer is "21,622.98".

Explanation:

In the given question some information is missing, which can be defined in the given attachment.

To calculate the first cost we first subtract B cost is to X.      

NPV = Cash Flow of the sum of PV amount  

PV = \frac{Flow of cash} {(1+i)^n} \\\\ \ Calculating \ the \ NPV \ of \ option \ A: \\\\

= \frac{-16600}{(1 + 0.08)^0}-\frac{2400}{(1 + 0.08)^1}-\frac{2400}{(1 + 0.08)^2} -\frac{2400}{(1 + 0.08)^3}-\frac{2400}{(1 + 0.08)^4}

= \frac{-16600}{1}-\frac{2400}{1.08}-\frac{2400}{1.16}-\frac{2400}{1.25}-\frac{2400}{1.36}

=-16600-2222.22-2068.96-1920-1764.70\\\\=-24,575.88

The value of Option A or NPV = -24,575.88

The value of Option B or NPV:

=-\frac{X}{(1 + 0.80)^0}-\frac{1000}{(1 + 0.08)^1} -\frac{1000}{(1 + 0.08)^2}-\frac{1000}{(1 + 0.08)^3}-\frac{1000}{(1 + 0.08)^4} \\\\ =-\frac{X}{(1.80)^0}-\frac{1000}{(1.08)^1} -\frac{1000}{(1.08)^2}-\frac{1000}{(1.08)^3}-\frac{1000}{(1.08)^4}

= -\frac{X}{1}-\frac{1000}{1.08}-\frac{1000}{1.16}-\frac{1000}{1.25}-\frac{1000}{1.36}\\\\= -X -555.55-862.06-800-735.29\\\\=-X -2952.9

The value of Option B or NPV = -X -2952.9

As demanded  

In Option B  the value of NPV = In Option A  the value of  NPV  

-X -2952.9= -24,575.88\\\\-X= -21,622.98\\\\X=21,622.98\\

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It's easier to develop a clear brand image and message for what sort of company?
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B. A company with a focused scope is much easier because a brand image is like a person's signature style. It's what distinguishes you from all the other brands.
4 0
3 years ago
Many years ago, Sprint Telecommunications aired an advertisement intended to demonstrate the clarity of reception Sprint custome
Misha Larkins [42]

The question is incomplete:

Many years ago, Sprint Telecommunications aired an advertisement intended to demonstrate the clarity of reception Sprint customers could expect. The ad showed a rancher, who had used a different company, complaining that he had ordered 100 oxen from his supplier and instead received 100 dachshunds. The mix-up was probably due to the presence of _____ in the communication process.

A.  noise

B.  poor encoding

C.  poor medium choice

D.  improprer network choice

E.  process loss

Answer:

A.  noise

Explanation:

-Noise refers to something that affects the communication process like a sound.

-Poor encoding  refers to not being able to use a medium to communicate.

-Poor medium choice  refers to picking the wrong channel to communicate.

-Improprer network choice  refers to picking the wrong transmission system to communicate.

-process loss refers to inefficiencies that affect the process.

According to this, the answer is that the mix-up was probably due to the presence of noise in the communication process because the statement indicates that the advertisement was intended to demonstrate the clarity of reception Sprint customers could expect and because of that, you can inferred that on the situation on the ad the probleem was due to noise that interfered with the clarity of the communication and because of that, the rancher received 100 dachshunds instead of 100 oxen.

7 0
4 years ago
On a shopping​ trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price wa
Mekhanik [1.2K]

Answer:

The correct answer is option B.

Explanation:

Melanie decided to buy a coat at a price of $79.95.  

When she brought the coat to the​ store's sales​ clerk, Melanie was told that the coat was on​ sale, and she would pay 20 percent less than the price on the tag.

She got a discount worth $15.99.

The consumer surplus, in this case, will be at least $15.99.

This is because the consumer surplus is the difference between the price the consumer is willing to pay for a good and the price he/she actually pays.  

Melanie paid $15.99 less than the price but she may have been willing to pay more than the initial price. So the consumer surplus will be at least $15.99.

3 0
4 years ago
Oriole Company will receive $43000 today (January 1, 2020), and also on each January 1st for the next five years (2021 – 2025).
raketka [301]

Answer:

PV of the six year annuity =  $201,923.57  

Explanation:

<em>This is an example of an advanced annuity. A series of constant amount receivable for certain number of years with first one occurring immediately.</em>

Present Value of the annuity for the next five years=

A×  1- (1+r)^(-n)/r

A- annual cash flow, n- number of period, r-interest rate per period

A- 43,000, r- 11%, n- 5

=43,000× (1- 1.11^(-5))/0.11

=158,923.57

The first cash flow of 43,000 occurs immediately , hence it is already discounted. Hence the PV of the total cash flows would be the sum of the PV of the next five year cash flows and the one received now.

Hence,

PV = 158,923.57  + 43,000= 201,923.57  

PV of the six year annuity =  $201,923.57  

7 0
4 years ago
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