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Digiron [165]
3 years ago
7

Design Interiors has a cost of equity of 14.9 percent and a pretax cost of debt of 8.6 percent. The firm's target weighted avera

ge cost of capital is 11 percent and its tax rate is 34 percent. What is the firm's target debt-equity ratio?
Business
2 answers:
seropon [69]3 years ago
7 0

Answer:

0.733 is the firm’s target debit-equity ratio

Explanation:

In this question, we are asked to calculate the firm’s debt-equity ratio.

To calculate this, we proceed as follows;

WACC = (Weight of equity * Cost of equity)+ (Weight of Debt* cost of debt)+ (1 - tax rate)

We identify the following;

WACC = 11%

Weight of equity = x

Cost of equity = 14.9%

Weight of debt = 1 - weight of equity = 1 - x

After tax cost of debt = 34%

11= x*14.9 + (1-x)*8.6*(1-34%)

11 = 14.9x + 5.676(1-x)

11 = 14.9x + 5.676 -5.676x

11-5.676 = 14.9x - 5.676x

5.324 = 9.224x

x = 5.324/9.224 = 0.577

Weight of equity = 0.577

Weight of Debt = 1-0.577 = 0.423

Firm's target debt-equity ratio = Weight of Debt /Weight of equity

Firm's target debt-equity ratio = 0.423/0.577= 0.733

Firm's target debt-equity ratio = 0.733

Savatey [412]3 years ago
4 0

Answer:

0.73

Explanation:

Given that

WACC = 11%

Tax rate = 34%

Cost of equity = 14.9 %

Cost of debt = 8.6%

Recall that

WACC = (cost of equity × % of equity) + (cost of debt × % of debt) + ( 1 - tax rate)

We are to find

Cost of debt and cost of equity

Let

Cost of debt be x

Cost of equity be (1 - x)

Thus,

0.11 = (1 - x)(0.149) + (x)(0.086)(1 - 0.34)

x = 0.4228

Therefore,

Debt-equity ratio

= Cost of debt/cost of equity

= 0.4228/(1 - 0.4228)

= 0.73

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Kaira's company recently switched to a new calendaring system provided by a vendor. Kaira and other users connect to the system,
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Answer:

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Explanation:

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3 0
3 years ago
Consider the following list of accounts: Cash Retained Earnings Service Revenue Utilities Expense Salaries Expense Accounts Rece
MAVERICK [17]

Answer:

Cash, account receivable, equipment, utilities expenses, salaries expense

Explanation:

Normally, the asset and expense accounts have debit balances while the liabilities, equity, revenue and other income accounts have credit balances.

In the given list of account:

Cash, account receivable, equipment belong to asset accounts, therefore will have normal debit balance.

Utilities expenses, salaries expense belong to expense accounts, therefore will have normal debit balance.

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4 0
3 years ago
The ________ is responsible for monitoring the money supply and the general stability and safety of the u. s. banking system.
____ [38]

The Federal Reserve is responsible for monitoring the money supply and the general stability and safety of u. s. banking system.

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The Federal Reserve promotes the safety and soundness of individual financial institutions and oversees their impact on the financial system as a whole.

The FOMC controls the country's money supply. The voting members of the FOMC are the Board of Governors, the president of the Federal Reserve Bank of New York, and the presidents of the other four Reserve Banks, who function on a rotating basis. All Reserve Bank Governors participate in FOMC policy discussions.

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8 0
1 year ago
Beau Corporation sells a unit of its product for​ $250 per​ unit, while its variable costs per unit are​ $75. Fixed cost are bud
wolverine [178]

Answer:

Number of units that must be sold to earn the target profit is 3000 units.

The contribution margin ratio is 0.70

Explanation:

We will use the break even analysis modified for target profit to calculate the number of units needed to earn the desired

The break even point in units is calculated by dividing the fixed cost by the contribution margin per unit. To calculate the number of units required to earn the desired profit, we add the desired profit to fixed cost and divide it by the contribution margin per unit.

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The contribution margin ratio is = 175 / 250   =  0.7 or 70%

Dollar Sales required to earn target profit = $4,812,500

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