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Marrrta [24]
3 years ago
10

Underground Clothing is a zero growth firm that has expected earnings before interest and taxes of $56,700, an unlevered cost of

capital of 16.2 percent, and a tax rate of 35 percent. The company also has $9,500 of debt that carries a coupon rate of 7 percent. The debt is selling at par value. What is the value of this firm
Business
1 answer:
koban [17]3 years ago
7 0

Answer:

$230,825

Explanation:

VU = [$56,700 × (1 - .35)] / .162

VU= $56,700×0.65/.162

VU=36,855/.162

VU = $227,500

VL = $227,500 + .35($9,500)

VL= $227,500+$3,325

VL= $230,825

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Westford Corporation has $185 million dollars of interest-bearing debt outstanding at the end of fiscal 2014 year. In addition,
Ratling [72]

Answer:

B) 9.1%

Explanation:

Cost of debt is the interest rate paid by a company due to borrowing money; i.e  debt from investors.

$185million in debt is the face value of debt that Westford Corporation had and the $26 million dollars of interest expense is the cost of the debt in dollars;

First, find pretax cost of debt ;

Pretax cost of debt = (Interest expense / Face value of debt )*100

= (26,000,000/ 185,000,000 )*100

=0.1405 *100

= 14.05%

Next, use pretax cost of debt to find after-tax cost of debt;

After-tax cost of debt = Pretax cost of debt (1-tax)

= 14.05% *(1-0.35)

= 9.13%

Therefore, Westford's cost of debt capital is 9.1%

6 0
3 years ago
Town A, in one hour, can produce either 4 hotdog buns, or 10 sausages. Town B, in one hour, can produce either 8 hotdog buns, or
katrin [286]

Answer:

The answer is 27 hours

Explanation:

Solution

The Comparative advantage depends on  production of the lower opportunity cost

The opportunity cost of a production is =maximum production of other good /maximum production of the good

Now,

The opportunity cost of hot dog bun for town A =10/4=2.5

Thus,

The opportunity cost of hot dog bun for town B=6/10=0.6

So,

The  town B has a comparative advantage in hot dog buns and A in sausages

Town A will produce-only sausages and it will take the time of  

time in hours =total required a quantity of the good /number of products in an hour

Now,

The time for Town A for sausages=120/10=12 hours

The time for Town B for hot dog buns=120/8=15 hours

Therefore, The total time =12+15=27 hours.

6 0
3 years ago
Nicholas bought land from Meredith for $150,000. Nicholas paid $50,000 cash and gave Meredith an 8% note for $100,000. The note
Tom [10]

Answer:

C. Nicholas is not required to recognize gross income, but must reduce his cost basis in the land to $130,000

Explanation:

3 0
3 years ago
A steel mill raises the price of steel by 7% which results in a 20% reduction in the quantity of steel demanded. The demand curv
Nana76 [90]

Answer:

Elastic demand

Explanation:

The price elasticity of demand is described as the sensitivity of demand to changes in its price. A product is price elastic when a small change in prices causes a significant change in quantity demanded. If a small change in price results in minimal impact in quantity demanded, the product is price inelastic.

Steel mill raised its prices by 7 percent. As a result, the demand declined by 20 percent. The demand decreased by a bigger rate than the change in price. It means a small change in price causes the demand to change significantly. Therefore, the demand curve is price elastic.

8 0
3 years ago
If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic response coefficient from inflation, would
Semenov [28]

The systematic response coefficient from inflation, would result in a change in any security return of <u>3.2 βI</u>.

<u>Explanation</u>:

<em><u>Given</u></em>:

Expected rate of inflation = 3%

Actual rate of inflation = 6.2%

The change in security return can be calculated by obtaining the differences between actual and expected levels of inflation.

Change in security return= Actual rate of inflation- Expected rate of inflation

                                                     = 6.2%-3%

                                                     = 3.2%

<u>Change in security return= 3.2 βI </u>

<u></u>

7 0
3 years ago
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