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lbvjy [14]
2 years ago
5

Boss asks you to explain the difference between the Cost of Capital and DiscountRate in a multi-year Net Present Value analysis

of a single project. You correctly point out that typically…
Business
1 answer:
babymother [125]2 years ago
6 0

Answer:

Cost of capital is the overall rate of return expected by investors while the discount rate is the minimum rate of return used for appraising a project in order to obtain the net present value.

Explanation:

Cost of capital is calculated as cost of equity multiplied by the proportion of equity in the capital structure plus cost of debt multiplied by the proportion of debt in the capital structure plus cost of preferred stock multiplied by the proportion of preferred stock in the capital structure.

Discount rate is the rate used for determining the attractiveness of a project. This rate is used for determining the net present value of a project.

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Targaryen Corporation has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt.
Juli2301 [7.4K]

Answer:

  • a. What is the company’s WACC?

R_Wacc =  13% (65%) + 5% (5%) + 6% (30%) * (1-0,25) =  10,05%

  • b. What is the aftertax cost of debt?

The aftertax cost of debt is:    

R_Debt :  (1 - 0,25) x 6% = 4,50%

Explanation:

The WACC it's defined by the formula :

WACC: E/V*Re + D/V*Rd *(1-0,25)

Re:   13,00%  Cost of Common Equity    

Re:   5,00%  Cost of Preferred STOCK  

Re:   6%     Cost of Debt  

E/V:   65%   Percentage of financing that is Common Equity  

PS/V:   5%     Percentage of financing that is Preferred Stock  

DB/V:   30%    Percentage of financing that is Debt  

Tax:  25%    Corporate tax rate  

Now we have all of the components to calculate the WACC.

The WACC is:      

R_Wacc =  13% (65%) + 5% (5%) + 6% (30%)*(1-0,25) =  10,05%  

The aftertax cost of debt is:    

R_Debt :  (1 - 0,25) x 6% = 4,50%

5 0
3 years ago
If a firm produced a standard item with relatively stable demand, the smoothing constant alpha (reaction rate to differences) us
nadezda [96]

Answer:A. 5 to 10%

Explanation: A smoothing constant is categorised into three the alpha beta and gamma smoothing constants.

The smoothing constant is variable that is used in time series analysis According to exponential smoothing.

The smoothing constants help to determine how the historical series values are weighed.

THE SMOOTHING CONSTANTS ARE USED IN FORCASTING AS THEY HELP TO ENSURE EFFICIENT FORCASTS.

3 0
3 years ago
On TV a commercial plays from Progressive insurance. Their spokeswoman, Flo, is extolling the benefits of the Name Your Price to
Katena32 [7]

Answer:

cultural elements of a company

Explanation:

distinctive personality

8 0
3 years ago
Select the primary places where county programs get their money.
RSB [31]

Answer:

state government

Explanation:

Counties, towns, and cities collect their money mostly from taxes and fees charged to enterprises. The State government is in charge of collect taxes such as income, sales, and property taxes.

7 0
3 years ago
A permanent fund classified under governmental funds ... A. Accounts for most of the basic services provided by the governmental
Wewaii [24]

Answer:

D. Accounts for resources that are legally restricted so only earnings, not principal, may be expended.

Explanation:

Based on the scenario been described in the question, we can say that a permanent fund classified under governmental funds are accounts for resources that are legally restricted so only earnings, not principal, may be expended. We have government funds as special service funds and debt service funds. so we this explanation, we can see that the best is option D which is the correct answer.

7 0
2 years ago
Read 2 more answers
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