1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
inn [45]
3 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]3 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%

You might be interested in
Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Each
ratelena [41]

Answer:

See below

Explanation:

a. At the end of the year, before distribution, each shareholder's basis

= $400,000 + $100,000 + $50,000

= $550,000

b. After the distribution, each shareholder's basis is

= $300,000 + $200,000

= $500,000

c. Therefore, each shareholder has

$250,000 worth of dividend income.

3 0
3 years ago
Why does emotional hijacking occur? a. People are hard-wired to feel emotions about a situation before they reason it out. b. Pe
sdas [7]

Answer:

a. People are hard-wired to feel emotions about a situation before they reason it out.

Explanation:

Emotional hijacking occurs when our brain's emotional processor (amygdala) bypasses our normal reasoning process.

This occurrence in terms of an emergency is a self-defence mechanism when it is necessary to act in the face of perceived danger.

Emotional hijacking occurs when there is a compulsive need to complete and action. For example answering an email, answering the phone.

It is possible to control emotional hijacking through emtional intelligence.

8 0
3 years ago
Journalize the following transactions for Cullumber Company.
Thepotemich [5.8K]

Answer and Explanation:

The journal entries are shown below

On Sept 1

Supplies Dr $1,020

    To Cash $1,020

(being supplies purchased in cash)

On Sept 5

Dividend Dr $410

   To cash $410

(being cash dividend is paid)

On Sept 7

cash Dr 5,500

   To Unearned service revenue  $5,500

(being cash collection is recorded)

On Sept 16

Cash Dr $770

  To Account receivable $770

(being cash collection is recorded)

On Sept 22

Equipment Dr $3,000

         To cash $1,100

         To Note payable $1,900

(being equipment purchased is recorded)

3 0
3 years ago
Which is more important integrity or trustworthiness
jarptica [38.1K]
Integrity is more important as this identifies an individuals qualities and principles of being honest, fairness and having strong morals to carry out a task ethically
With integrity comes trustworthiness of an individual as they will always do the right thing if they have integrity as a principle in life
4 0
2 years ago
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recent monthly contribution fo
nadya68 [22]

Answer:

If linen department is dropped operating income of the company will decrease.

Explanation:

That is because the cotrollable margin of the department is positive:

controllable margin = contribution margin - controllable fixed costs

$605,000-($800,000-380,000) = 185,000

That means that the Linen department helps to reduced fixed cost that are not generated by this department and that will keep existing wether the department is closed or not.

In addittion the Hardware department will loose 19% of its sales if the Linen department is closed. Thus will result in a reduction of the cntribution margin of the hardware deparment too.

Download xlsx
3 0
3 years ago
Other questions:
  • If you were given a large data set, such as the sales over the last year of our top 100 customers, what might you be able to do
    15·2 answers
  • Megatronics, Inc., obtains computer components from a variety of suppliers and puts them together according to customer specific
    12·1 answer
  • When it comes to fraud committed by an organization’s employees, the single most effective fraudprevention technique is _______.
    11·1 answer
  • Based on what you've noticed from observing the population statistics for countries of the world, what can you say about what is
    6·1 answer
  • ______________separates financial information into time periods for reporting purposes. (select an option)
    15·1 answer
  • Dartford Company reported the following financial data for one of its divisions for the year; average investment center total as
    9·1 answer
  • Lancencus, a software company, plans to double its workforce in the next 10 years. To achieve this goal, the human resources man
    9·1 answer
  • Which statements about data warehousing is not correct?
    9·1 answer
  • virtually all jobs and professions, regardless of the proficiency or experience needed to perform them, require good skills.
    5·1 answer
  • One significant contemporary management challenge is:_________
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!