A ———- relationship would include your co-workers and friends?

If Wild Widgets, Inc., were an all-equity company, it would have a beta of 0.9. The company has a target debt-equity ratio of .4

Veronika [31]

Answer:

a. 6.5%

b. 13.06%

c. 10.91%

Explanation:

a.

Cost of debt of a bond is yield to maturity. Yield to maturity is the rate of return that a investor actually receives or a borrows actually pays on a bond. It is long term return or payment which is expressed in annual term.

Formula for yield to maturity is as follow

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

By placing values in the formula

Assuming the bond face value is $1,000

Yield to maturity = [ (1000x7.2) + ( 1,000 - $1,090 ) / 20 ] / [ ( 1,000 + $1,090 ) / 2 ]

Yield to maturity = [ $72 + ( 1,000 - $1,090 ) / 20 ] / $1,045

Yield to maturity = [ $72 - $4.5 ] / $1,045

Yield to maturity = $67.5 / $1,045

Yield to maturity = 6.5%

So, the cost of Debt is 6.5%

b.

As 0.9 is the unlevered beta, We need Levered beta due to restructuring of capital.

Beta Levered = Beta Unlevered x ( 1 + ( 1 - tax rate ) x Debt / Equity)

Beta Levered = 0.9 x ( 1 + ( 1 - 0.35 ) x 0.4 )

Beta Levered = 1.134

Cost of equity can be calculated using CAPM

CAPM calculated the expected return on an equity investment based on the risk free rate, market premium and risk beta of the investment.

Formula for CAPM is as follow

Expected return = Risk free Rate + Beta ( Market premium)

As we know the Risk premium is the difference of market return and risk free rate.

Expected return = Risk free Rate + Beta ( Market Return - Risk free Rate )

Ra = Rf + β ( Rm - Rf )

Ra = 4.1% + 1.134 ( 12% - 4.1% )

Ra = 13.06%

Cost of Equity is 13.06%

c.

WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs.

According to WACC formula

WACC = ( Cost of equity x Weightage of equity )+ ( Cost of debt ( 1- t) x Weightage of debt )

Placing the values in formula

If the debt to equity 0.4 the equity value should be 1 and total capital is 1.4 ( 1 + 0.4 )

WACC = ( 13.06% x 1 / 1.4 )+ ( 6.5% ( 1- 0.35) x 0.4 / 1.4 ) = 9.71% + 1.2% = 10.91%

WACC is 10.91%

4 0

3 years ago

The tax treatment regarding the sale of existing assets that are sold for more than the book value but less than the original pu

8_murik_8 [283]

Answer:

capital gain tax liability

Explanation:

Capital gain tax is defined as the type of tax that is paid when the owner of an investment or asset makes a profit from its sale.

For example when the assets are sold for more than the book value but less than the original purchase price, there is a profit made that is called capital gain.

The tax applied to this capital gain is called capital gain tax liability.

6 0

3 years ago

Which of the following is a characteristic of a partnership? a.The partners have limited liability. b.The partnership is subject

Ulleksa [173]

Answer:

The correct answer is letter "C": The partnership has a limited life.

Explanation:

A partnership is an organization with two or more members running a business. They share the profits in percentage terms in proportion to their partnership value. There are two types of partnerships: general partnerships (unlimited liability) and limited partnerships (liability proportional to the contribution to the partnership).

The partnership dissolves and a new partnership is created when one of the partners is removed, retired or deceased or even when a new partner is introduced. Thus, partnerships have a limited life.

8 0

3 years ago

The marketing manager at Arbor's Delicatessen targets customers who are working to lose weight but who still want to dine out.

zavuch27 [327]

Answer:

psychographic segmentation

Explanation:

The consumer research uses psychographic segmentation as a form of market differentiation which distinguishes consumers into sub-groups based on common behavioral traits, including subconscious or aware beliefs, incentive and preferences to understand and forecast the behavior of consumers. Psychographic segmentation is centered on the characteristics, beliefs, behaviors, desires and lifestyles of your consumer market.

7 0

3 years ago

Suppose the firm faces a price of $49, an average variable cost of $26, and has an average fixed cost of $5. In the short-

pychu [463]

Answer:

A) can cover all its costs, ⇒ C) and will have a profit per unit of $18.

Explanation:

The company sells its products at $49 per unit, and each unit's total cost is $31 (= $26 variable costs + $5 fixed costs), therefore the company is covering all its costs and making an $18 profit (= $49 - $31) for each unit is sells.

3 0

4 years ago