The following transactions were completed by the company.

You are given the following information for Watson Power Co. Assume the company’s tax rate is 23 percent. Debt: 8,000 5.7 percen

____ [38]

Answer:

the company's WACC is 10.04%

Explanation:

Weighted Average Cost of Capital (WACC) is the minimum return that a project must offer before it can be accepted. It shows the risk of the company.

Capital Source Market Value Weight Cost Total Weight

Debt $8,400,000 27.71% 4.389 % 1.22%

Common stock $24,190,000 71.17% 12.2% 8.68%

Preferred stock $1,400,000 4.12% 3.5% 0.14%

Total $ 33,990,000 100.00% 10.04%

Calculation of Market Value and Cost of Debt

Market Value = 8,000×($1,000×105%) = $8,400,000

Cost of Debt = interest × (1 - tax rate)

= 5.7% × ( 1-0.23)

= 4.389 %

Calculation of Market Value and Cost of Common stock

Market Value = 410,000× $59 = $24,190,000

Cost of Common stock = Risk free Rate + Beta × Market Premium

= 4.5% + 1.10× 7%

= 12.2%

Calculation of Market Value and Cost of Common stock

Market Value = 17,500× $80 = $1,400,000

Cost of Preferred stock = 3.5%

7 0

3 years ago

A finance company agrees to loan money to a buyer for a new washer and dryer. What is this an example of?

kirill115 [55]

The correct answer is: B. The finance company is extending credit to a buyer.By agreeing to loan money to a buyer, the finance company is extending credit to a buyer. Once credit is extended to the buyer and if the buyer uses the credit to buy the washer and dryer, the money borrowed then becomes a debt. The finance company may be saving the buyer money, but that cannot be determined from the example. I got this right in U.S.A Test Prep hope this helps! :) [plz reward brainlyiest <3]

5 0

2 years ago

Read 2 more answers

Sponsorship is an effective marketing strategy, particularly for sporting goods and recreational equipment.

Kitty [74]

Answer:true

Explanation: just took the test

5 0

3 years ago

Assume that a firm spends $500 on two inputs, labor and capital. If the wage rate is $20 per hour and the cost of capital is $25

Zolol [24]

Answer:

D. -4/5

Explanation:

Given that

Wage rate = $20 per hour

Cost of capital = $25 per hour

Recall that,

Slope of isocost = -(w/r)

Where,

W = wage rate

r = rental cost of capital.

Thus,

Slope of isocost curve

= -(20/25)

= -0.8 or -4/5

Note that, the negative of the ratio is the price of the two inputs. Also isocost is a line showing the various combinations of inputs which cost the same amount.

6 0

3 years ago

Read 2 more answers

What information does a target cost-per-acquisition (cpa) bid strategy need in order to find the optimal cost-per-click (cpc) bi

Butoxors [25]

They would need historical conversion data because using this allows you to find the optimal equivalent bid each time your ad is eligible to appear. Even though you pay per click, you don't need to continuously adjust the bid to reach your conversion target

7 0

3 years ago