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boyakko [2]
3 years ago
6

570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 11.1%, $20,000 of prefe

rred stock at a cost of 12.2%, and $320,000 of equity at a cost of 14.7%. The firm faces a tax rate of 25%. What will be the WACC for this project? (Note: Round your intermediate calculations to three decimal places.)
Business
1 answer:
exis [7]3 years ago
3 0

Answer:

WACC = 12.040%

Explanation:

WACC represents weighted average cost of all sources of financing. In the question there are three sources of finance 1) Equity 2) Preferred Stock 3) Debt.

1) Equity: The firm intends to raise $ 320,000 from equity out of total financing of $ 570,000 e.g. 56% of total financing comes from Equity. Thus multiplying the cost of equity 14.7% (given) with ratio of equity financing, we get to weighted average cost of equity of 8.253%.

2) Debt: The firm is raising $ 230,000 from debt e.g. 40% of total financing. The proportion of debt is multiplied by post tax cost of debt as the interest expense is deductible expense for tax purposes in most of the jurisdiction. Therefore we reduce the cost of debt with element of (1 - tax rate), thus we get to 8.325% = 11.1 (1 - 25%) as total cost of debt. In order to get weighted average cost of debt we multiply this post tax cost of debt with ratio of debt financing 40%, thus weighted average cost of debt is 8.325 * 40% = 3.359%

3) Preferred Stock: The firm is also raising finance from preferred stock having cost of 12.2%. Proportion of financing from preferred stock is 4% in total mix of financing, thus weighted average cost of preferred stock is 12.2% * 4% = 0.428%.

Now adding weighted average cost of all three sources of funding, we get WACC: 8.253% + 3.359% + 0.428% = 12.040%

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Bob operates Bob's Pizza, a small pizzeria that sells about 50 pizzas a day. Bob's daily total fixed costs are $100, and his dai
Sonja [21]

Available options are:

A. All of the choices are correct.

B. Average fixed costs would increase.

C. Marginal costs would increase.

D. Average variable costs would increase

Answer:

Option B. Average fixed costs would increase.

Explanation:

As the variable cost is the same which means that the marginal cost (All variable costs) would neither increase nor the average variable cost (Average variable cost due to fluctuating variable cost) would increase. Hence both Option C and D are incorrect.

Option B is correct because:

Average Fixed cost = (Initial Value + Value Now) / 2

Average Fixed cost = ($100 + $150) / 2 = $125

This means that the average cost has been increased.

6 0
3 years ago
Acquiring Company is considering the acquisition of Target Company in a stock for stock transaction in which Target Company woul
ad-work [718]

Answer:

1) 0.8333

2) 16,666

3) 2.33

4) 56.40

5) 2.2

Explanation:

Share Exchange Ratio = Price per share for Target Company / Market price per share for Acquiring Company  = $50 / $60  =  0.8333

New shares issued by Acquiring Company = Shares of Target Company x Exchange ratio (20,000 x 0.8333) = 16,666

Total shares outstanding of the combined companies = 60,000 + 16,666  = 76,666

Post-merger EPS of the combined companies = ($150,000 + $30,000)/ 76,666 = $2.35

Pre-merger EPS of Acquiring Company = $150,000 / 60,000 = $2.50

Post-merger share price = $2.35 x 24 (pre-merger P/E = $60.00/$2.50) = $56.40

Purchase price = 50 * 20,000 = 1,000,000

Interest expense = 1,000,000 * 8% = 80,000

Post-merger earnings = 150,000 + 30,000 – 80,000 * (1-0.4) = 132,000

Therefore, Post-merger EPS of the combined companies = 132,000/60,000 = 2.2

6 0
3 years ago
All of the following are true regarding IASB members except: A. Part-time members must sever employment relationships with forme
Ainat [17]

Answer:

A) Part-time members must sever employment relationships with former employers

D) IASB shall comprise 16 members, and up to 3 of those members may be part-time

Explanation:

Since December 1, 2016, the International Accounting Standards Board (IASB) has 14 board members (reduced from 16 by the 2015 constitution review). All of the 14 members are full time members, there are no more part time members. Each member is appointment for a 5 year initial term that can be renewed for either a 3 or 5 year second term. But no member can serve for more than 10 years.

3 0
3 years ago
Analyze and evaluate the ways that both external and internal migration changed over time from 1830 to 1920.
Verizon [17]

Answer:

See explanation below.

Explanation:

It is important to note that from 1830-1900 migration in America increased especially on the coasts with immigrants who came from other countries in search of a better life. We will show some of the most important events associated with external and internal migration.

External migration increased by the discovery of gold on the west coast and opportunities across the country. In 1982 there was an important event called "Chinese exclusion law", this was the first law implemented to prevent all members of a specific ethnic group (Chinese women) from immigrating in the United States.

Internal migration was influenced by the mining industry throughout the country, the discovery of gold and silver. The native people of America moved from their original land to another. Another important event was "The Homestead Act" in 1862, with this the government provided any adult citizen who could stay for 5 years an amount of 160 acres for the cultivation of this land

7 0
3 years ago
Jason keeps a record of his transactions in a notebook. Looking over his records for the past two weeks, Jason finds that his ba
DanielleElmas [232]

The explanation to the discrepancy arising in Jason's accounts and his bank statement is "Jason transposed the digits on the microwave’s price, which actually cost $86. 74." This can be calculated by reconciling the balance of accounts and bank passbook.

<h3>What is reconciliation statement?</h3>

Reconciliation statement refers to a statement that is prepared to match the accounting balance with the balances in bank passbook. The differences arising due due omission, commission, duplication, or error of principal are given proper effect in the reconciliation to match account with the bank balances.

The answer to the given question can be justified as follows:

Given:

Ending balance as per accounts is $491.33.

Ending balance as per bank statement $473.33

Difference in ending balance is \%491.33 - \$473.33 = \$18

The only statement that justifies the difference of $18 is that the digits of microwave has been transposed from $86.74 to $68.74.

The difference so arising from this error is $86.74 - $68.74 i.e. $18

Hence the correct statement is D

Learn more about the topic here:

brainly.com/question/6601838

4 0
2 years ago
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