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Delicious77 [7]
3 years ago
10

Pearson Motors has a target capital structure of 45% debt and 55% common equity, with no preferred stock. The yield to maturity

on the company's outstanding bonds is 10%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 14.50%. What is Pearson's cost of common equity
Business
1 answer:
gizmo_the_mogwai [7]3 years ago
5 0

Answer:

21.45%

Explanation:

Pearson motors has a target capital structure of 45% debt and 55% common equity

The yield to maturity is 10%

Tax rate is 40%

WACC is 14.50%

First of all we have to find the tax cost of debt

Tax cost of debt= Yield to maturity×(1-tax rate)

= 8×(1-25/100)

= 8×(1-0.25)

= 8×0.75

= 6%

The next step is to calculate the common equity

Therefore, the common equity can be calculated as follows

WACC= Respective cost×Respective weight

14.50= (6×0.45)+(0.55×common equity)

14.50= 2.7+(0.55×common equity)

14.50-2.7= (0.55×common equity)

11.8= (0.55×common equity)

Common equity= 11.8/0.55

Common equity= 21.45%

Hence Pearson's cost of common equity is 21.45%

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Many manufacturers have quality control programs that include inspection of incoming materials for defects. Suppose a computer m
zimovet [89]

Answer:

Explanation:

There are total 5 batches and two boards are selected from each batch for inspection.

Let the boards are numbered from 1 to 5.

If the selected boards are 1 and 2, then it is represented in pair as (1, 2).

If the selected boards are 1 and 3, then it is represented in pair as (1, 3).

Similarly, other pairs can be obtained.

a) Let X be the number of defective boards observed among the two inspected.

If the boards 1 and 2 are the only defective boards in a lot of five, then

(1,2),x=2; (1,3),x=1; (1,4),x=1; (1,5),x=1;

(2,3),x=1; (2,4),x=1; (2,5),x=1;

(3,4),x=0;\ (3,5),x=0;\ (4,5),x=0.(3,4),x=0; (3,5),x=0; (4,5),x=0.

P(X=0)=  3/10 =0.3

P(X=1)={6 \over 10}=0.6P(X=1)=  6/10 =0.6

P(X=2)={1 \over 10}=0.1P(X=2)=  1/10 =0.1

b)

x                  0               1                    2

p(x)            0.3           0.6                0.1

​

​μ  X  =0⋅0.3+1⋅0.6+2⋅0.1=0.8

σ  X ² =(0−0.8)²  ⋅0.3+(1−0.8)²  ⋅0.6+(2−0.8)² ⋅0.1=0.36

μₓ=0.8, σX  =0.6

 

​

5 0
3 years ago
A7X Corp. just paid a dividend of $1.70 per share. The dividends are expected to grow at 20 percent for the next eight years and
mrs_skeptik [129]

Answer:

$41.64

Explanation:

The computation of the price of the stock today is shown below

Price of stock today = Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n  + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n ÷ (1 + required rate of return)^n + Dividend per share × (1 + growth rate)^n × 1 + decreased growth rate ÷ (required rate of return - decreased in growth rate) ÷ (1 + required rate of return)^n

= ($1.70 × 1.2 ÷ 1.15) + ($1.70 × 1.2^2 ÷ 1.15^2) + $1.70 × 1.2^3 ÷ 1.15^3) + $1.70 × 1.2^4 ÷ 1.15^4) + ($1.70 × 1.2^5 ÷ 1.15^5) + ($1.70 × 1.2^6 ÷ 1.15^6) + ($1.70 × 1.2^7 ÷ 1.15^7) + ($1.70 × 1.2^8 ÷ 1.15^8) + (1.70*1.2^8*1.05 ÷ (15% - 5%)) ÷ 1.15^8)

= $41.64

We simply applied the above formula

The N represents the time period

3 0
3 years ago
You own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 0.66 and the total
Alja [10]

Answer:

The beta of the other stock or stock B is 2.34

Explanation:

The beta of the portfolio is the weighted average of the individual stock betas that form up the portfolio. To calculate the beta for the portfolio, we use the following formula,

Portfolio beta = wA * Beta of A + wB * Beta of B + ... + wN * Beta of N

Where,

  • w represents the weight of each stock in the portfolio

As the portfolio is equally as risky as the market, the portfolio beta is assumed to be the same as that of the market and the beta is 1.

The beta is the measure of systematic risk and a risk free asset does not have risk and has a beta of 0.

To calculate the Beta of stock B in the portfolio, we simply put the available values in the formula for the portfolio beta,

1 = 1/3 * 0 + 1/3 * 0.66 + 1/3 * Beta of B

1 = 0 + 0.22 + 1/3 * Beta of B

1 - 0.22 = 1/3 * Beta of B

0.78 * 3 = 1 * Beta of B

2.34 = Beta of B

Thus, the beta of the other stock or stock B is 2.34

4 0
3 years ago
Handling inventory materials and parts, and supervising the shipping process belongs to the ______ career pathway.
Sonja [21]
I believe it is inventory
7 0
3 years ago
Read 2 more answers
Social responsibility is
snow_tiger [21]

Answer:

The correct answer is D.

Explanation:

The term social responsibility can be defined as an ethical framework or idea where the individuals and organizations feel obligated to work for the benefit of society at large. They feel accountable to a larger society.  

We know that a trade-off exists between economic growth and the welfare of society. The idea of social responsibility is to make an equilibrium between these two such that both economic growth and social welfare is achieved.  

This idea is not only limited to organizations but to anyone whose actions affect the environment.

7 0
4 years ago
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