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
monitta
3 years ago
5

Serendipity Inc. is re-evaluating its debt level. Its current capital structure consists of 80% debt and 20% common equity, its

beta is 1.60, and its tax rate is 25%. However, the CFO thinks the company has too much debt, and he is considering moving to a capital structure with 40% debt and 60% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. What's the firm's new cost of equity under 40% debt?
Business
1 answer:
Dmitriy789 [7]3 years ago
8 0

Answer:

8.76%

Explanation:

Using the CAPM formula:

Ke = Rf + Beta Factor * Risk premium

Here

Rf is 5%,

Beta Factor is 1.6

And

Risk Premium is 6%

By putting values, we have:

Ke = 5% + 1.6 * 6%

Ke = 14.6%

Now we will find new firm's cost of equity under 40% debt by simply multiplying it with the equity percentage:

Weighted Cost of Equity = 14.6% * 60% = 8.76%

You might be interested in
Mary Kay Cosmetics and Amway (multi-layer marketing companies) sell their products through home and office sales parties, online
Sindrei [870]

Answer:

Direct

Explanation:

Distribution channels refers to a system in which an organization makes its products available to potential customers.

Direct distribution refers to the process in which goods are sold directly to the consumers. It allows the customers to purchase goods directly from the manufacturers without any form of intermediaries.

Direct distribution enables a manufacturer to interact directly with the customers and get feedbacks about their products.

8 0
3 years ago
Indirect channels for consumer goods
Komok [63]

Answer:

The most indirect channel you can use (Producer/manufacturer –> agent –> wholesaler –> retailer –> consumer) is used when there are many small manufacturers and many small retailers and an agent is used to help coordinate a large supply of the product.

8 0
3 years ago
Easy career question below first correct answer gets brainliest
Alina [70]
I believe the correct answer is Bachelor’s Degree
7 0
2 years ago
Please help. I will mark you as brainliest !!!
OLga [1]
Hey hhufghjoofffghggh
8 0
2 years ago
Read 2 more answers
Please help answer economics questions for 100 points and brainliest
MAVERICK [17]

It is c I had this question also

8 0
2 years ago
Other questions:
  • If a firm can earn ________, the firm is creating value for its shareholders.
    11·1 answer
  • Which federal government agency is the primary source for quality delivery of health services?
    6·1 answer
  • How did speculative investing weaken the stability of the stock market
    12·1 answer
  • The method of dividing the project scope into many parts that, when combined, would constitute the project deliverable is called
    10·1 answer
  • A proposed project has fixed costs of $47,000 per year. The operating cash flow at 11,000 units is $69,000. a. Ignoring the effe
    7·1 answer
  • If the first $20,000 of your income (or any portion thereof) is taxed at 10%, and the next $30,000 of your income (or any portio
    6·1 answer
  • Red Carpet Industries had retained earnings of $537,500 and $135,000 of net income. On its previous balance sheet, at 12/31/18,
    15·1 answer
  • What do you think the letters in SMART stand for?
    7·2 answers
  • George borrowed $1,895. 50 for two years. The total amount he repaid was $2,189. 38. How much interest did he pay for the loan?.
    8·1 answer
  • Suppose a u. S. Treasury bond will pay $4,475 five years from now. If the going interest rate on 5-year treasury bonds is 4. 25%
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!