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sashaice [31]
3 years ago
13

Assume Time Warner shares have a market capitalization of $60 billion. The company is expected to pay a dividend of $0.30 per sh

are and each share trades for $40. The growth rate in dividends is expected to be 7% per year. Also, Time Warner has $20 billion of debt that trades with a yield to maturity of 8%. If the firm's tax rate is 35%, compute the WACC
Business
1 answer:
den301095 [7]3 years ago
3 0

Answer:

WACC = 7.2%

Explanation:

<em>Weighted average cost of capital is the average cost of all of the long-term types of finance used by a company weighted according to the that amount of finance used in relation to the total pool of fund</em>

To compute the WACC , we will follow the steps below:

Step 1

<em>Calculate the cost of the individual sources of finance:</em>

Cost of debt =   Before-tax deb × (1-T)

                    = 8% × (1-0.35)

                    = 5.2%

Cost of equity = (Do(1+g)/Po ) + g

                        = (0.30 (1+0.07)/ 40)   + 0.07

                        = 7.8%

Step 2

<em>Calculate the market value of the individual sources of finance</em>

Equity = $60 billion  

Debt = $20 billion

Step 3

<em>Calculate WACC</em>

            =  7.8% × 80 billion = 4.6815

            =    5.2% ×  $ 20 billion = 1.04

Total value of debt and equity = 60 + 20 = $80 billion

WACC =  (4.68  + 1.04)/ 80 × 100

         = 7.2%

WACC = 7.2%

               

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Answer:

The correct answer is  - No,

Explanation:

The correct answer is  - No,

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Therefore the owner wouldn't consider the broker and didn't due broker commission.

8 0
3 years ago
If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the margin
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Answer:

reduce output

Explanation:

The marginal cost ($26) is greater than the marginal revenue ($25). In order to maximise profit, marginal cost should he reduced up to the point where marginal cost equals marginal benefit.

A firm should shutdown, reduce production to zero if average variable cost is greater than price but in this question, the firm shouldn't shut down since price ($25) is greater than average variable cost ($24).

I hope my answer helps you

5 0
3 years ago
The owners of a local business are making a rational decision about how many workers to hire. How many workers would cause the m
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<h2>10 workers would cause the marginal  to exceed the marginal benefits.</h2>

Explanation:

  • Let us understand the term "Marginal benefits".
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  • In terms of producers, the marginal benefit is termed as marginal revenue.
  • Here according to the situation given in the question as to how many workers to hire could be answered by the number 10.
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8 0
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Answer:

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Explanation:

<em>The weighted average method of valuation would be used to determine the the equivalent units for conversion​ costs</em>

<em>Under the weighted average method of valuation, to account for completed units, it is assumed that the entire degree of work required is done in the period under consideration. So there is no separation of the completed units into opening inventory and fully worked. </em>

Equivalent unit = Degree of completion × Units of inventory

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Completed   unit                     3,300       3,300× 100 =       3.300

Closing work in progress       4,300        4,300×  84%=      <u>3,612 </u>

Total equivalent units                                                           <u>6,912 </u>

The equivalent units for conversion​ costs= 6,912 units

7 0
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Answer:

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