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Alexandra [31]
3 years ago
12

Johansen Corporation has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is 14 per

cent, and the cost of debt is 8 percent. The relevant tax rate is 30 percent.What is the company's WACC?
Business
1 answer:
Dmitry_Shevchenko [17]3 years ago
8 0

Answer:

10.64%

Explanation:

The computation of the WACC is shown below:

= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of  common stock) × (cost of common stock)

= (0.40 × 8%) × ( 1 - 30%) +  (0.60 × 14%)

= 2.24% + 8.4%

= 10.64%

Simply we multiply the weightage with its capital structure so that the Accurate weighted cost of capital can be calculated

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2 years ago
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Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $18
Fantom [35]

Answer:

Levered, Inc. and Unlevered, Inc.

Equity shares in the Levered, Inc. represents a better value.

Explanation:

a) Data and Calculations:

                                          Levered, Inc.      Unlevered, Inc.

Debts at 8%                        65 million          $0

Outstanding shares           1.9 million          3.8 million

Market price per share     $98                    $71

Equity value                       $186.2 million    $269.8 million

Expected EBIT                   $18 million          $18 million

Interest ($65 million * 8%) $5.2 million       $0

Net income                        $12.8 million      $18 million

Earnings per share           $6.74                  $4.74

Dividends per share         $6.74                  $4.74

b) The value of the equity shares in the Levered Inc. would have increased more if both firms pay taxes because of the tax advantage gained by deducting interest expense from the earnings before taxes.  This shows that financial leverage increases the value of equity shares.

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3 years ago
1. (30 points) Please elaborate what will happen to Net Earnings to Sales and Net Earnings to Total Book Assets when you observe
marta [7]

Answer:

Impact on Net Earnings to Sales and Net Earnings to Total Book Assets:

a) A company's Net Earnings to Sales and Net Earnings to Total Book Assets will increase due to the 30% increase in sales.  This result will be different with an increase by a similar margin in the Cost of Goods Sold.

b) Net Earnings to Sales and Net Earnings to Total Book Assets will decrease by 30% as a result of the increase in Property, Plant, and Equipment, because this increase also increased the operating and administrative expense (depreciation), even though Sales and Cost of Goods Sold remained constant.

Explanation:

The net earnings to sales is an expression of the ratio of the net income to the sales revenue.  The net earnings result after deducting all costs from sales revenue.  The net earnings to total book assets are the same expression as the Return on Assets.

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Consider the supply curve for basketballs. Other things held constant, if the price of basketballs goes up from $7. 99 to $14. 9
Tanzania [10]

There will be an increase in quantity supplied. (The Law of Supply)

  • A key tenet of economic theory is the rule of supply, which asserts that a rise in price will result in an increase in the quantity provided, all other things being equal. In other words, there is a direct correlation between price and quantity, and quantities react to price changes in the same way.'
<h3><u>What is a case of the law of supply?</u></h3>
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To Learn more about Law of Supply, Click the links.

brainly.com/question/17805586

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Scarcity is a condition that is everywhere and always, since it is based upon two assumptions that reflect permanent universal c
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Answer:

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