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nadezda [96]
3 years ago
9

A firm has zero debt in its capital structure. Its overall cost of capital is 8%. The firm is considering a new capital structur

e with 50% debt. The interest rate on the debt would be 5%. Assuming that the corporate tax rate is 40%, and all else is equal. including its risk profile, what would be its new cost of equity?
Business
2 answers:
Oxana [17]3 years ago
5 0

Answer:

 9.8%        

Explanation:

Formula;

Ke=overall cost of capital+(1-.4)(Overall cost of capital-cost of debt)

Where Ke= Cost of equity

overall cost of capital=8%

cost of debt=5%

Ke=8%+(1-.4)*(8%-5%)

Ke=8%+(1.8%)

Ke=9.8%

madam [21]3 years ago
4 0

Answer: 9.8%

Explanation:

Because rs = 8 + (1 - .4)(1)(8-5) = 8 + 1.8 = 9.8%

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5 0
1 year ago
Diamond Company has three product lines, A, B, and C. The following financial information is available:
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Answer:

e. Increase by $4,500.

Explanation:

<u>Analysis of the effect of discontinuing Product Line C</u>

Income :

Rent Income                                                    $6,000

Savings : Fixed Costs - Avoidable                 $3,000

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Costs :

Opportunity Cost - Contribution Margin       $4,500

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Net Income (Loss)                                           $4,500

therefore,

By discontinuing Product Line C, operating income for the company will likely  Increase by $4,500

5 0
3 years ago
. If the price elasticity of demand for pineapple is 0.75, a 4% increase in the price of pineapple will lead to a A. 3% decrease
ludmilkaskok [199]

Answer:

A) 3% decrease in the quantity demanded of pineapple.

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We know that the demand curve is negative, which means that as price of a product increases, its demand will decrease.

In unitary elasticity(1) the change in demand means that the change in quantity demanded will be the same. A 0.75 elasticity will thus mean that the quantity demanded will change by a factor of 0.75 as compared to the change in price.  

Therefore when the price of pineapple increases by 4%, the quantity demanded will decrease by 4 * 0.75 = 3%

3 0
3 years ago
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Which of the following statements about human populations in industrialized countries is incorrect? Which of the following state
ozzi

Answer: Birth rates and death rates are high.

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In industrialized countries the life expectancy is reasonably high, so it's false to state that the death rate is high.

Also in industrialized countries birth is controlled as against developing countries that don't really put birth control measures.

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According to the text, management contracts usually stipulate that a fee of __________ be paid to the firm providing the managem
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Answer:

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