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inn [45]
2 years ago
11

BC Corporation has 2.8 million shares of stock outstanding. The stock currently sells for $50 per share. The firm’s debt is publ

ically traded and was recently quoted at 95 percent of its face value. It has a total face value of $10 million, and it is currently priced to yield 12 percent. The risk-free rate is 5 percent, and the market risk premium is 7 percent. You’ve estimated that ABC has a beta of 1.25. If the corporate tax rate is 35 percent, what is the WACC of ABC Corporation?
Business
1 answer:
Evgesh-ka [11]2 years ago
4 0

Answer:

The WACC is 13.37%

Explanation:

The WACC or weighted average cost of capital is the cost of a firm's capital structure. The capital structure is made up of debt, preferred stock and common stock. In this question, there are only two components present in the capital structure i.e. debt and common stock.

The formula for WACC is,

WACC = wD * rD * (1 - tax rate)  +  wE * rE

Where,

  • w represents the weight of each component in the capital structure or value of each component as a proportion of total assets
  • r represents the cost of each component
  • we take after tax cost of debt. So we multiply cost of debt by (1 - tax rate)

We first need to determine the cost of equity using the CAPM,

rE = 0.05 + 1.25 * 0.07   =  0.1375 or 13.75%

We know that assets = debt + equity

Assets = (0.95 * 10)  +  (2.8 * 50)

Assets = 9.5  +  140  

Assets = 149.5 million

The WACC for ABC is:

WACC = 9.5/149.5  *  0.12  *  (1 - 0.35)  +  140/149.5  *  0.1375

WACC = 0.1337 or 13.37%

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No, there is not any requirement of recording when the fair value of bonds decreases to $6000000 on December 31 of the current year.

Given that Starbucks purchased bonds with $ 7 million face value at par for cash on July 1 of the current year and the bonds pay 7 percent interest the following June 30 and December 31 and mature in three years.

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A bond is basically a debt security, similar to an IOU and borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When we buy a bond, we are lending to the issuer, which may be a government, municipality, or corporation.

There is not any requirement of any recording when the fair value decreases to $600000 because it is not affecting our books of accounts because in our books they are recorded at face values.

Hence there is not any requirement of recording when the fair value of bonds decreases to $6000000 on December 31 of the current year.

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1 year ago
For a plaintiff to establish that he or she has standing to sue, the plaintiff must allege ________.
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<h3>Who is a Plaintiff?</h3>

A plaintiff is an individual or group who initiates a lawsuit in a court of law. The plaintiff by doing so seeks justice and a legal remedy for that particular problem.

When a plaintiff seeks to establish that he or she has a legal standing to sue, he must allege a personal stake in the resolution of the controversy. That way, he would properly establish the fact.

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If the government takes this approach, consumer surplus would increase.

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Answer:

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Entrepreneurs innovate sometimes by commercializing inventions and ideas. They look for new business opportunities and find resources they can use in exploiting them. Commercializing an invention was done by Jeff Bezos in this instance. He saw the distribution opportunities available in the internet, and with the growing percentage increase of the internet users per month, he decided to create Amazon. He transformed the invention of the internet into the innovation of Amazon.

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A) . It is going to be a while before things get better in the United States.

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