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3 years ago

Is the cost of equity calculated from the CAPM model, pre -tax or post-tax?

1 answer:

3 0

The existence of pre-tax cost of debt and post-tax cost of debt is due to the acknoledgement of the tax benefit from issuing debt.There is no tax benefit from paying divdends,so it makes no sense talking about pre-tax,post-tax cost of equity for a firm.When you think about cash flow to equity you can only assume that the taxes owed by the company have already been paid.Now, the taxation over the income of the shareholder is a whole different issue that does not take place in this discussion,since it is not taken in consideration either in cost of equity or cost of debt.

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Please attach the graph if you can. Otherwise, I cannot answer this question

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3 years ago

The following are the unit costs of making and selling an item at a volume of 30,000 units per month, which represents the compa

nadezda [96]

Answer:

$7.90 per unit

Explanation:

The computation of the minimum price on these defective units is shown below:

It is equivalent to the selling & admin variable cost per unit i.e. $7.90 per unit

oAs all the other cost would be considered as a sunk cost because the product is already generated and the fixed cost is not considered as it would remain the same whether the production is increase or not

Therefore the second option is correct

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3 years ago

A buyer purchased a new residence for $175,000. The buyer made a down payment of $15,000 and obtained a $160,000 mortgage loan.

Naily [24]

Answer:

Buydown, is the right answer.

Explanation:

This is a buydown mortgage arrangement because in the buydown financing technique the buyer tries to take lower interest rates in the initial year of the loan period. Moreover, some mortgage lenders provide buydown discounts or points as part of their promotion. Secondly, the builder pays the initial payment to the mortgage institution that results in the lower buyer’s payment.

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3 years ago

Redwood Corporation is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investme

Nady [450]

Answer:

6.1%

Explanation:

As per given data

Proposal X Proposal Y

Investment $900,000 $488,000

Useful life 9 years 9 years

Annual net cash inflows for 9 years $130,000 $84,000

Residual value $42,000 $0

Depreciation method Straight-line Straight-line

Required rate of return 15% 12%

Accounting rate of return is the ratio of average net income of a project and the average investment made in the project.

Accounting rate of return = Average Net income / Average Investment

As net cash inflows are given we need to deduct the depreciation from the cash flows to arrive at the net income for the period. As all cash flows are constant so, the average value will be equal to the single years value.

Average net income = Net cash inflows - Depreciation = Net cash inflows - ( Cost of Asset - Residual value ) / Useful life of asset = $84,000 - ( $488,000 - $0) / 9 = $84,000 - $54,222 = $29,778

Average Investment = $488,000

Placing Values in the formula

Accounting rate of return = $29,778 / $488,000 = 6.1%

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4 years ago

Assuming Gerald has $50,000 income in 2020, (and considering both at-risk and passive activity loss rules), what is the amount o

Masteriza [31]

Answer:

Please see attachment

Explanation:

Please see attachment

5 0

3 years ago