Answer:
$22,583,305.84
Explanation:
The computation of the maximum initial cost is as follows
But before that following calculations need to be done
WACC = wd × rd + we × re
Where,
Weight of debt wd = 0.85 ÷ (1 +0.85) = 0.85 ÷1.85
Weight of equity we = 1 ÷ (1 + 0.85) = 1 ÷ 1.85
After-tax cost of debt, rd = 5.3%
And the cost of equity, re = 12.5%
Now
WACC = (0.85 ÷ 1.85) × 5.3% + (1 ÷ 1.85) × 12.5%
= 9.19%
The discount rate would be
= WACC + adjustment factor of +2%
= 9.19% + 2%
= 11.19%
Now
PV of future Cash Flows is
= After-tax cash savings ÷ (k –g)
Where,
After-tax cash savings = $1.85 million
k = 11.19% per year
g = 3% per year
Therefore,
= $1,850,000 ÷ (0.1119 - 0.03)
= $22,583,305.84
Answer: 9.25%
Explanation:
Risk free rate, Rf = 5% = 0.05
We then subtract the risk free rate of 5% from the expected date of return on market portfolio of 10%. This will be:
= 10% - 5% = 5%
Beta = 0.85
Required return will now be:
= Rf + (Rm-Rf) x Beta
= 5% + (5% × 0.85)
= 5% + 4.25%
= 9.25%
Answer:
An increase in the price of a ticket will not cause a decrease in demand, but rather a decrease in quantity demanded.
Explanation:
Answer:
a. The present discounted value of a stream of returns can be calculated in real or nominal terms. TRUE
This is true because the present value of returns can be calculated using nominal rates which do not account for inflation, or using real rates which will account for inflation.
b. The higher the one-year interest rate, the lower the present discounted value of a payment next year. TRUE
Higher interest rates discount payments faster because they discount by dividing the payment so a higher rate would divide the payment more and lead to a lower present value.
c. Interest rates are normally expected to be constant over time. FALSE
Interest rates change over time in response to economic conditions.
d. Bonds are a claim to a sequence of constant payments over a number of years. TRUE
As a bondholder, you are entitled to payments over the life of the bond which means that it is a claim to constant payment over a number of years.
e. The yield curve normally slopes up. TRUE
The yield curve slopes upward to represent that interest rates increase in future.
Answer:
$258,790
Explanation:
Bramble report as its December 31 inventory:
= Inventory in hand as per physical count + Goods purchased from P corporation under FOB shipping basis + Cost of goods sold to A company under FOB destination basis
= $216,300 + $22,720 + $19,770
= $258,790
Therefore, the amount to be reported by Bramble company is $258,790.