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dybincka [34]
2 years ago
5

ABC and XYZ are identical firms in all respects except for their capital structures. ABC is all-equity financed with $530,000 in

stock. XYZ has the same total value but uses both stock and perpetual debt; its stock is worth $310,000 and the interest rate on its debt is 7.9 percent. Both firms expect EBIT to be $62,222. Ignore taxes. The cost of equity for ABC is _____ percent and for XYZ it is ______ percent.
a. 12.09; 9.82
b. 11.74; 14.47
c. 12.09; 12.48
d. 11.74; 9.82
e. 11.74; 12.48
Business
1 answer:
densk [106]2 years ago
5 0

Answer:

b. 11.74; 14.47

Explanation:

For Cost of Equity:

COE = (EBIT - Interest - Taxes) / Total Equity

ABC Company: EBIT = $62,222, Equity = $530,000, Debt = 0, Tax = 0

COE = ($62,222 - 0 - 0) / $530,000

COE = 11.74

XYZ Company: EBIT = $62,222, Equity = $310,000, Debt = $220,000, Tax = 0, Interest Rate = 7.9% (0.079)

COE = [$62,222 - ($220,000*0.079) - 0] / $310,000

COE = ($62,222 - $17380) / $310,000

        = $44842 / $310,000

        = 14.465 ≈ 14.47

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Answer:

1)  C=C1+C2...+Cn

2) A=A1+A2...+An

3) Explanation is in the description

Explanation:

First, we have that the information given is incomplete. We need the information of the manufacturing overhead of Orlando Enterprises. Then, we are going to work on the problem without any specific data and give a general answer that will serve for any such data.

The attached table shows a way to represent the information of the manufacturing expenses, where the left column represents the current costs and the right column the allocated costs.

1) Current manufacturing overhead is then given by:

C=C1+C2...+Cn

2) 2) The allocated manufacturing overhead is given by:

A=A1+A2...+An

3) Finally, to determine if manufactured overhead is underallocated or overallocated:

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If x>0, the manufactured overhead is udercalled.

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astraxan [27]

Answer:

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4 0
3 years ago
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