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
Amanda [17]
3 years ago
12

Anderson's Furniture Outlet has an unlevered cost of capital of 8%, a tax rate of 35%, and expected earnings before interest and

taxes of $1,500. The company has $3,500 in bonds outstanding that have a 5% coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?
Business
1 answer:
navik [9.2K]3 years ago
5 0

Answer:

8.67%

Explanation:

The computation of cost of equity is shown below:-

Before capitalization the value of equity = Interest and taxes × (1 - tax rate) ÷ Cost of capital

= $1,500 × (1 - 0.35) ÷ 0.08

= $1,500 × 0.65 ÷ 0.08

= $12,188

Value of firm with debt = The value of equity before capitalization + (Bonds outstanding × tax rate)

= $12,188 + ($3,500 × 0.35)

= $13,413

After recapitalization debt equity ratio = Cost of capital + ((Cost of capital - Coupon percentage) × Tax rate × (1 - tax rate)

= 0.08 + ((0.08 - 0.05) × (0.35) × (0.65))

= 0.08 + ((0.03) × (0.35) × (0.65))

= 8.67%

You might be interested in
How does the use of plastic to produce bicycle helmets affect other plastic-using industries? A. It decreases the prices offered
zheka24 [161]

Answer:

The correct answer is option D.

Explanation:

The use of plastic to produce bicycle helmets will reduce the amount of resources available to other industries that use plastic. If an industry is making helmets from plastic, they are using plastic as inputs in the production process. This will cause a reduction in the quantity of plastic available.

This plastic is used by other industries as well. They will experience a reduction in the resources available to them.

5 0
3 years ago
________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as invent
goblinko [34]

Answer:

A) variable costing

Explanation:

acording to a citated text the variable costing excluded all fixed manufacturing costs is the Variable costing

4 0
3 years ago
Difference between relevant information and additional information​
dybincka [34]

Answer: Relevant information is information that is important or needed in order to understand the topic in a given passage. Additional information is information that is not needed or unnecessary in the paragraph (it is extra information).

Explanation:

7 0
3 years ago
A. calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 15-year annuity i
Leokris [45]
<span>The first step is to multiply the present value by the interest rate. Since the present value is $1.6 million and the interest rate is 10%, this yields. $160,000. This product is then divided by 1 - (1 + the rate)^-term. So it is divided by 1 - (1.1)^-15. That is, the annual payment = $160,000/[1 - 1.1^-15] = $160,000/.760607951= $210,358.04</span>
3 0
3 years ago
A service station owner in Staten​ Island, New​ York, was worried that raising the price of gasoline would cause the quantity de
lara31 [8.8K]

Answer:

The demand for gasoline is elastic .

Explanation:

The elastic demand which is also termed as the price elasticity of demand, according to this concept the demand for a good is sensitive to changes in the price of goods, that means (according to this question ) if the prices of gasoline are increased by the service station owner, than the demand for gasoline would decrease . Here the demand would change by same percentage , that price would change.

5 0
3 years ago
Other questions:
  • An appropriate choice of outdoor play equipment for a toddler play yard would be
    5·1 answer
  • An authentication token is a(n):____________
    8·1 answer
  • Marc and michelle are married and earned salaries this year of $70,400 and $14,400, respectively. In addition to their salaries,
    13·1 answer
  • To minimize the invasion of privacy, _____.
    13·1 answer
  • Suppose that investment demand increases by $300 billion in a closed and private economy (no government or foreign trade). Assum
    8·1 answer
  • What is in dynamic equilibrium ??????? I need it for my physical education exam​
    9·1 answer
  • uppose that the resource base in Country X can produce either 100 units of alpha or 300 units of beta. Similarly, suppose that C
    7·1 answer
  • Which of the following is an investigator’s commitment to the sponsor?
    9·1 answer
  • Star Jewelry sells 500 units resulting in $75,000 of sales revenue, $28,000 of variable costs, and $18,000 of fixed costs. The n
    12·1 answer
  • Production cost information for the Molding department follows. Beginning work in process Direct materials $ 49,000 Conversion 5
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!