Answer:
The firm's optimal capital structure is 80% Debt and 20% Equity.
The WACC at this optimal capital structure is 10.28%.
Explanation:
Note: See the attached excel file the computation of the weighted average cost of capital (WACC) at the optimal capital structure. Also note that the data in the question are merged together but they are sorted in the attached excel file before answering the question.
The optimal capital structure of a firm can be described as a combination of debt and equity financing that is the beat in which market value of the firm is maximized while its cost of capital is minimized.
Using the weighted average cost of capital (WACC), the optimal capital cost capital structure occurs at a point where the WACC is the lowest.
From the attached excel file, the lowest WACC is 0.1028, or 10.28%. At this firm Market Debt- to-Value Ratio (wd) which is debt is 0.80 (i.e. 80%), and Market Equity-to-Value Ratio (ws) which is equity is 0.20 (i.e. 20%).
Therefore, the firm's optimal capital structure is 80% Debt and 20% Equity.
The WACC at this optimal capital structure is 10.28%.
Answer:
The correct answer is I, II and III.
Explanation:
The return that an investor earns with a bond can be calculated in different ways. The price of the bonds fluctuates with the change in interest rates, but once the investor buys a bond, the return is fixed. The yield to maturity is a way of providing the investor with the most accurate representation of the return he will receive for the holding of said bond.
Types of bond yield
Based on the current price, a bond shows three different types of maturity. The yield of the coupon is the interest rate paid by the bond at face value. A US $ 10,000 bond with a 6 percent interest coupon pays US $ 300 interest every 6 months. The current return is the coupon rate divided by the bonus price. If the bond with a nominal value of US $ 10,000 and a 6 percent coupon rate can be purchased for US $ 9,600, its current yield is 6.25 percent. The yield at maturity is the internal rate of return of the bond based on the time remaining for the bond's maturity.
Expiration Yield
The calculation of the yield at maturity amortizes the value of the premium or the discount (bonds over and under the pair) in the price of the bond throughout the life of the bond. For example, if the bond that pays 6 percent of the aforementioned coupon rate expires in 10 years, and is priced at US $ 9,600, the yield at maturity is 6,558 percent. If two bonds, one on the pair and one under the pair, have the same yield at maturity, any of them represents the same level of return for the investor. The yield at maturity is what the investor will receive if the bond is purchased at the current market price and held until maturity.
Answer:
$72,000
Explanation:
To calculate investment interest expense dedcution, we need to know the total investment income & total investment interest expenses
Then there're 2 scenarios as followings:
- If the investment interest expenses are less than the net investment income, the entire investment interest expense is deductible.
- If the investment interest expenses are more than the net investment income, we can deduct the expenses up to the net investment income amount. The rest of the expenses are carried forward to next year.
In this example, Ramon's investment income is $72,000 ($34,500 of interest and a $37,500 net capital gain on the sale of securities); is lower than his interest expenses of $83,100.
So Ramon is entiled to deduct $72,000 all the entire investment interest expense in current year
C. Provide objective evidence that a transaction has taken place.
Answer:
Check the explanation
Explanation:
The Expressed accumulated value<em><u> (which is the overall sum an investment holds at present, which also includes the capital that was invested and the gain it has received to date. The accumulated value can also be referred to as an cash value.)</u></em> of this third annuity at the time of its last payment can be seen in the attached image below:
