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Darya [45]
3 years ago
13

Use the data provided on Cadbury to answer the question below. The risk free rate is​ 4.25%. The expected return on the market p

ortfolio is​ 9.75%. The corporate tax rate is​ 40%. The face value of​ Cadbury's outstanding bonds is 2.450 billion pounds sterling. The coupon rate on​ Cadbury's bonds is​ 4.5%. Assume that the bonds pay annual coupons. The yield to maturity on​ Cadbury's bonds is​ 4.5%. Cadbury's bonds mature in 7 years. Cadbury has 1.650 billion common shares outstanding. The market price of​ Cadbury's common shares as of Dec​ 31, 2008 is 6.25 pounds sterling.​ Cadbury's Beta is 0.8.​ Cadbury's cost of debt ​(afterminus ​tax) is​ 2.7%. Cadbury's cost of equity is​ 8.65%. What is​ Cadbury's WACC?
Business
1 answer:
Sladkaya [172]3 years ago
4 0

Answer:

7.51%

Explanation:

The formula to compute WACC is shown below:

= (Weightage of debt) × (after cost of debt) + (Weightage of  common stock) × (cost of common stock)

where,  

Weighted of debt = Debt ÷ total firm

The total firm includes debt, and the equity which equals to

= 2.450 billion × $ 1 + 1.650 billion × $6.25

= 2.450 billion + 10.3125 billion

= 12.7625 billion

So, Weighted of debt = ($2.450 billion ÷ $12.7625 billion) = 0.192

And, the weighted of common stock = (Common stock ÷ total firm)

                                                              = $10.3125 billion ÷ $12.7625 billion

                                                              = 0.808        

Now put these values to the above formula  

So, the value would equal to

= (0.192 × 2.7%) +  (0.808 × 8.65%)

= 0.5184% + 6.9892%

= 7.51%

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Answer:

Hidden Valley's Asset Turnover = 1.6

Explanation:

Average Total Asset = (Total Assets at the beginning of the year + Total Assets at the end of the year)/2

Average Total Asset = (450,000+550,000)/2

Average Total Asset = 1,000,0000/2 = 500,000

Asset Turnover = Net Sales / Average Total Asset

Asset Turnover = 800,000/500,000

Asset Turnover = 8/5

Asset Turnover = 1.6

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3 years ago
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How do price ceilings and price floors restrict the free exchange of prices?
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3 years ago
In the month of June, Jose Hebert’s Beauty Salon gave 4,125 haircuts, shampoos, and permanents at an average price of $40. Durin
viktelen [127]

Answer:

Contribution margin= $41,250

Contribution margin per unit=  $10

Contribution margin ratio= 0.25 or 25%

Breakeven Point ($)=$66,000

Breakeven Point (units)=1,650 units

Explanation:

Contribution margins = sales price - variable costs

The sales price is $40 per unit.

variable costs per units will be total variable cost / total units

total variable costs will be 75% of sales

= 4,125 x $40

=$165,000

variable cost will be 75/100 x 165,000

=0.75 x 165,000

=$123,750

variable cost per item is $123, 750 / 4125

variable cost per unit is $30

(Total)Contribution margin is sales - variable costs

=$165,000 - $123,750

=$41,250

Contribution margin per unit will be $40- $30

Contribution margin per unit is $10

Contribution margin ration =<u>total revenue - variable costs</u>

      total revenue

                                             = <u>$165,000 - $123,750</u>

                                                         $165,000

=41,240/ 165,000

=0.25

=As a percentage, contribution margin ratio = 25%

Break-even point using contribution margin technique

Break-even  in units = fixed cost/ contribution margin per unit

= $16,500/ 10

=1650 units

Break-even in dollars= Breakeven units x selling price

=1650 x 40

=$66,000

3 0
3 years ago
The Woods Co. and the Speith Co. have both announced IPOs at $69 per share. One of these is undervalued by $16, and the other is
lana [24]

Answer:

(a) $18,000

(b) $3,600

Explanation:

(a) Profit would be:

= (No. of shares × Undervalued) - (No. of shares × Overvalued)

= (1,800 × $16) - (1,800 × $6)

= $28,800 - $10,800

= $18,000

(b) Only half your order will be filled.

With rationing (and being an uninformed investor) we expect our profits:

= (No. of shares × Undervalued) - (No. of shares × Overvalued)

= (900 × $16) - (1,800 × $6)

= $14,400 - $10,800

= $3,600

6 0
3 years ago
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