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
Debora [2.8K]
4 years ago
14

HH Industries has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk

free and has and interest rate of 5%, and the expected return of HH stock is 11%. Suppose a strike causes the price of HH stock to fall 25% to $3 per share. The value of the risk free debt is unchanged. Assuming there are no taxes and the risk of HH's assets is unchanged, what happens to HH's equity cost of capital
Business
1 answer:
ELEN [110]4 years ago
6 0

Answer:

12%

Explanation:

For computing the equity cost of capital first we have to determine the weight of the capital structure after that the WACC and then finally equity cost of capital which is shown below:

Weight of capital structure

For debt  

= $200 million ÷ $400 million

= 0.50

For equity

= 50 million × $4 ÷ $400 million

= 0.50

Now the WACC is

= 0.50  11% + 0.50 × 5%

= 8%

Since the value fo equity is declined by

= 50 × $3

= $150

Now the equity cost of capital is

= WACC + (WACC - interest rate) × (debt ÷ equity)

= 8% + (8% - 5%) × (200 ÷ 150)

= 12%

You might be interested in
According to the information mentioned in the course, which of the following color schemes is best practice for financial modeli
OLEGan [10]

Answer:

c. Hard Codes in Blue, Formulas in Black

Explanation:

The color schemes that shows the best practice for the financial modelling is as follows;

Blue - inputs or hard coded data like historical values, etc

Black - formulas, calculations to the same sheet

Green -  formulas, calculations to the other sheet

So the option c is correct

And, the rest of the options are incorrect

8 0
3 years ago
g Credit card applicants have an average credit rating score of 667. Assume the distribution of credit scores is Normal with a s
Marizza181 [45]

Answer:

P(X>700)=P(\frac{X-\mu}{\sigma}>\frac{700-\mu}{\sigma})=P(Z>\frac{700-667}{65})=P(z>0.508)

And we can find this probability using the complement rule and excel or a calculator and we got:

P(z>0.508)=1-P(z

Explanation:

Previous concepts

Normal distribution, is a "probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean".

The Z-score is "a numerical measurement used in statistics of a value's relationship to the mean (average) of a group of values, measured in terms of standard deviations from the mean".  

Solution to the problem

Let X the random variable that represent the rating score of a population, and for this case we know the distribution for X is given by:

X \sim N(667,65)  

Where \mu=667 and \sigma=65

We are interested on this probability

P(X>700)

And the best way to solve this problem is using the normal standard distribution and the z score given by:

z=\frac{x-\mu}{\sigma}

If we apply this formula to our probability we got this:

P(X>700)=P(\frac{X-\mu}{\sigma}>\frac{700-\mu}{\sigma})=P(Z>\frac{700-667}{65})=P(z>0.508)

And we can find this probability using the complement rule and excel or a calculator and we got:

P(z>0.508)=1-P(z

7 0
3 years ago
clean water softener systems has cash of $600, accounts receivable of $900, and office supplies of $400. clean owes $500 on acco
ivann1987 [24]

Answer:

Cleans current ratio is = 2.71

Explanation:

The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations.

Current asset is any asset which can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within the current fiscal year or operating cycle.

Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer.

Current ratio = current assets ÷ current liabilities.

From the question above;

Current assets;

Cash $600

Account receivable $900

Office supplies $400

Total $1900

Current liabilities;

Account payable $500

Salaries payable $200

Total $700

Current ratio = 1900 ÷ 700

Current ratio = 2.71

8 0
3 years ago
According to the production possibilities curve above, if the economy is producing 75 fishing boats and 400 jars of guava jelly,
Thepotemich [5.8K]

Answer: the economy is using resources efficiently

Explanation:

The Production Possibility Curve simply shows how two goods can be produced in an economy when the resources that are used to produce the goods are being used efficiently without wasting them.

According to the production possibilities curve above, if the economy is producing 75 fishing boats and 400 jars of guava jelly, then the economy is using resources efficiently.

Here, economic efficiency simply means that the resources that are utilized are optimally allocated while inefficiency and wastage are being minimized. Foe economic efficiency to take place, there'll be opportunity cost. This is shown in the graph as more fishing boats are produced, less jars of guava jelly are made and vice versa.

6 0
4 years ago
The value of what type of money comes from what it is made of?
vladimir1956 [14]

Answer:

a.representative money

Explanation:

sure po ako dyan na ayan po ang sagot maraming salamat po

3 0
3 years ago
Other questions:
  • Two factory plants are making tv panels. yesterday, plant a produced 12,000 panels. two percent of the panels from plant a and 5
    7·1 answer
  • "The potentially valid arguments for tariff protection are also the most easily abused. " What are those arguments? Why are they
    5·1 answer
  • How can statistics of a product's dimensions be used to assess the quality of the product?
    7·1 answer
  • The Tobler Company had budgeted production for the year as follows:
    8·1 answer
  • On January 1, 2010, Dragon Company paid cash to purchase an automobile. The car dealer gave Dragon a $1,000 cash discount off th
    15·1 answer
  • Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics. Microeconomics
    12·1 answer
  • You have found an asset with 12.60 percent arithmetic average return and a 10.24 percent geometric return. Your observation peri
    7·1 answer
  • What is barry’s and melissas gross earnings ?
    9·1 answer
  • Discuss the relationship between a fishing business and a supermarket <br>​
    6·1 answer
  • Role o vision, mission,and objectives in entreprenial development in Nigeria businesses? Pls describe
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!