1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
scoray [572]
3 years ago
12

Carson Electronics uses 58 percent common stock and 42 percent debt to finance its operations. The aftertax cost of debt is 5.4

percent and the cost of equity is 15.3 percent. Management is considering a project that will produce a cash inflow of $49,600 in the first year. The cash inflows will then grow at 2.5 percent per year forever. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project?
Business
1 answer:
Zigmanuir [339]3 years ago
6 0

Answer:

$573,941.22

Explanation:

Use WACC formula to find the cost of capital for discounting the given cashflows;

WACC = wE*rE + wD*rd (1-tax)

whereby;

wE = weight of equity

rE = cost of equity

wD = weight of debt

rd (1-tax) = aftertax cost of debt

WACC = (0.58*0.153) + (0.42 *0.054)

= 0.08874 + 0.02268

= 0.1114 or 11.14%

Find the present value of the growing perpetual cashflows which will be equivalent to the maximum initial outlay of the project needed to avoid a negative NPV;

PV = CF/ (WACC - g)

Cashflow; CF = $49,600

WACC = 11.14%

growth rate ; g = 2.5%

PV = 49,600/ (0.1114 - 0.025)

PV = 573,941.22

Therefore, maximum amount the firm can initially invest in this project to avoid a negative net present value is $573,941.22

You might be interested in
Which of the following actions is likely to have the lowest initial cost in terms of its impact on other parts of the organizati
klemol [59]

Answer:

Option 2, laying off some workforce will have the lowest initial cost.

Explanation:

In option 1 if an organization is going to replace existing equipment with the new machines there is a definitely high cost involved in it because we do know that modern and newer machines costs more.

In option 3, if we go for lower-grade quality, we may face lost sales, or sales return which will add up to our cost.

However, if we go for option 2. there is no upfront cost involved in this decision but rather our cost is saved.

Thus the organization must opt for the 2nd option in order to find the lowest initial cost.

3 0
3 years ago
Bond Yield and After-Tax Cost of Debt A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 y
Rzqust [24]

Answer:

9.73%

Explanation:

For computing the after tax cost of debt first we have to determine the cost of debt by applying the RATE formula i.e. to be shown in the attachment below:

Given that,  

Present value = $604.42

Future value or Face value = $1,000  

PMT = 1,000 × 8% ÷ 2 = $40

NPER = 20 years × 2 = 40 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 6.95% × 2 = 13.9%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 13.9% × ( 1 - 0.30)

= 9.73%

8 0
3 years ago
You have just been promoted from a supervisory role to a mid-level management position overseeing several work teams. You are ea
vaieri [72.5K]

Answer:

The correct answer is a. human interpersonal skills.

Explanation:

Interpersonal skills refers to the correct treatment between people in order to achieve a level of harmony and understanding for the benefit of everyone's work. The characteristic of the new position, where you must have a greater relationship with people, is enough to determine the type of skills that must be developed to carry out an excellent function in front of everyone's work. However, you should not leave out the other skills that are also necessary, only at a lower level of importance.

8 0
3 years ago
Tips and Hacks for Successful LinkedIn Lead Generation?
Svetradugi [14.3K]

Answer:

Here are some tips & tricks for Successful LinkedIn Lead Generation:

<em>1. Spend More Time on LinkedIn  </em>

<em>2. Tweak and Optimize Your Profile  </em>

<em>3. Use a Cloud-based LinkedIn Automation Tool  </em>

<em>4. Connect Strategically  </em>

<em>5. Use Personalization  </em>

<em>6. Don’t Forget to Analyze Campaign Statistics</em>

4 0
3 years ago
If sales are $540,000, expenses are $440,000 and dividends are $50,000, what is the balance of income Summary prior to closing?
alexandr402 [8]

Answer:

d. It will have a credit balance of $100,000.

Explanation:

In the income statement, the total revenues and the total expenses are recorded.  

If the total revenues are more than the total expenditure then the company earns net income

And, If the total revenues are less than the total expenditure then the company have a net loss

This net income or net loss would reflect in the statement of the retained earning account.

So, the balance of income summary equals to

= Sales - expenses

= $540,000 - $440,000

= $100,000

The dividend should be deducted from the retained earning account. Hence, it will not be consider here

7 0
4 years ago
Other questions:
  • What is the myth of amoral business?​
    11·1 answer
  • What two things does a loan payment go toward?
    8·1 answer
  • Which of the following statements is correct regarding the components of the master​ budget?
    11·1 answer
  • Project Q has an initial cost of $211,415 and projected cash flows of $121,300 in Year 1 and $176,300 in Year 2. Project R has a
    9·1 answer
  • Arona Corporation manufactures canoes in two departments, Fabrication and Waterproofing. In the Fabrication Department, fibergla
    6·1 answer
  • Marc agrees to sell Diana 500 copies of a book for $3.50 per book. Marc breaches the contract by not delivering the books. At th
    9·1 answer
  • What internet business model would be appropriate for a company to follow in creating a website &amp; why? The company is a hair
    10·1 answer
  • In the space below, explain how you can access the character map in Word 2016 using a complete sentence.
    14·2 answers
  • Which phrase best completes the diagram?
    7·2 answers
  • The process of a business or organization attempting to acquire goods or services to accomplish the goals of its enterprise is c
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!