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slamgirl [31]
3 years ago
6

The cost of debt capital The cost of debt that is relevant when companies are evaluating new investment projects is the marginal

cost of the new debt that is to be raised to finance the new project. rate. It usually differs from the average cost of the required return (or cost) of newly-issued debt is often referred to as the financial capital raised by a firm in the past. Consider the case of Purple Lemon Shipbuilders: Purple Lemon Shipbuilders is considering issuing a new twenty-five-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a market price equal to its par value. Purple Lemon's CFO has pointed out that the firm will incur a flotation cost of 2% when initially issuing the bond issue. Remember, these flotation costs will be 30%. from the proceeds, the firm will receive after issuing its new bonds. The firm's marginal federal-plus-state tax rate is To see the effect of flotation costs on Purple Lemon's after-tax cost of debt, calculate the before-tax and after-tax costs of the firm's debt issue with and without its flotation costs, and insert the correct costs into the boxes. (Note: Round your answer to two decimal places.) The before-tax cost of debt without flotation cost: After-tax cost of debt without flotation cost: Before-tax cost of debt with flotation cost: After-tax cost of debt with flotation cost:
Business
1 answer:
jenyasd209 [6]3 years ago
4 0

Answer:

Since the market value equals face value,coupon rate =yield is 75/1000=7.5%

That is 7.5% is before tax cost of floating the bonds

At tax rate of 30%,after tax cost of floating bond =7.5%*(1-30%)=5.25%

However,with a flotation cost of 2%,the before tax cost of flotation is calculated  using below formula found in the explanation section.

((75+(1000-980)/25)/(980+1000)*2)=7.66%

Since tax rate remains 30%,the after tax cost  of floating the bond with floating cost of 2% is: 7.66%*(1-30%)=5.36%  

Explanation:

(Interest payment+((Par value-Net Proceds Value)/number of yr)/(Net Proceds+Par value)/2  

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A small business produces a single product and reports the following​ data: Sales price ​$8.50 per unit Variable cost ​$5.25 per
ozzi

Answer:

The correct answer is Decrease by $5,500.

Explanation:

According to the scenario, the computation of the given data are as follows:

First we calculate the previous operating income, by using following formula:

Previous operating income = ($8.5 - $5.25) × 10,000 units - $22,000

= $10,500

Now, we will calculate the current operating income by using following formula:

New operating income = ($7.5 - $5.25) 12,000  units - $22,000

= $5,000

So, the change in operating income can be calculated as

Change in operating income = New operating income - Previous operating income

= $5,000 - $10,500

= -$5,500 ( Negative shows Decrease)

= Decrease by $5,500.

8 0
3 years ago
Cape Corp. will pay a dividend of $3.60 next year. The company has stated that it will maintain a constant growth rate of 5 perc
victus00 [196]

Answer:

$30

Explanation:

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

$3.6 / (0.17 - 0.05)

$3.60 / 0.12  = $30

6 0
3 years ago
Sobota Corporation has provided the following partial listing of costs incurred during August:
QveST [7]

Answer:

a. $365,000

b. $346,800

Explanation:

The computations are shown below:

a. For product cost:

= Direct materials used + Direct labor + manufacturing overhead

where,

Manufacturing overhead  = Indirect labor + Property taxes, factory + Depreciation of production equipment

= $45,000 + $18,900 + $42,200

= $106,100

So, the product cost would be

= $168,100 + $90,800 + $106,100

= $365,000

b. For period cost

= Marketing salaries + Administrative travel + Sales commissions + Advertising

= $51,700 + $100,800 + $50,000 + $144,300

= $346,800

4 0
3 years ago
If a seller in a competitive market chooses to charge more than the going price, then:
attashe74 [19]

Answer:

d. buyers will make purchases from other sellers

Explanation:

In the perfect competition structure producers have no power to change prices, as goods are homogeneous. Thus, since products are the same, if the producer raises the price, consumers will consume with other sellers.

3 0
3 years ago
People bring their abilities, goals, and experiences to each and every situation, which often changes the situation. Conversely,
kobusy [5.1K]

Answer:

interdependent person and situation factors.

Explanation:

Interpendent person refers to the type of person who realize that each individuals have their own negative and positive attributes, including themselves. This type of person realize that people need to rely on each other in order to cope with the negative attributes that they have.

Situation factors refers to a characteristic that might make a certain situation become unique from another.

Often time, an individual can be effective in handling a certain situation , but extremely inefficient when handling other situation. This happen because they have different abilities/experiences that added to their positive attribute. In order to survive a situation that they can't handle really well, people need to learn to become interdependent person.

7 0
3 years ago
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