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otez555 [7]
2 years ago
7

O’Connell & Co. expects its EBIT to be $83,000 every year forever. The firm can borrow at 11 percent. O’Connell currently ha

s no debt, and its cost of equity is 15 percent.
1. If the tax rate is 35 percent, what is the value of the firm? (Round your answer to 2 decimal places. (e.g., 32.16)


2. What will the value be if the company borrows $144,000 and uses the proceeds to repurchase shares? (Round your answer to 2 decimal places. (e.g., 32.16))
Business
1 answer:
andrew11 [14]2 years ago
7 0

Answer:

1. $3,59,666.66

2. $4,10,066.66

Explanation:

1. The computation of value of firm is shown below:-

As the Earning before interest and tax given remains the same, this impact that there is no growth rate in the earnings to consider.

= Earning before interest and tax × (1 - Tax) ÷ Cost of equity

= $83,000 × (1 - 0.35) ÷ (0.15)

= $53,950 ÷ 0.15

= $3,59,666.66

2. The computation of value of levered firm is shown below:-

Value of unlevered firm + Debt × Tax rate

= 3,59,666.66 + ($144,000 × 35%)

= $4,10,066.66

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The correct option is D.
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7 0
3 years ago
Fiscal policy lags:_________.
lianna [129]

Answer:

d) may be shorter or longer than monetary policy lags.

Explanation:

Remember, the term policy lags refers generally to the lag or length of time between the time when an economic problem is discovered, like increased unemployment, and the extent to which policy solves the economic problem.

From a general perspective this policy lags in fiscal policy may be shorter or longer than monetary policy lags depending on the political and economic environment of the country.

5 0
3 years ago
A candy store sells boxes of candy containing caramels and cremes. Each box sells for $12.50 and hold 30 pieces of candy (all pi
evablogger [386]

Answer:

Number of caramels = 20

number cremes = 30 - 20 = 10

Explanation:

Data provided in the question:

Selling cost of each box = $12.50

Number of pieces of candies held in a box = 30

Cost of producing caramel = $0.25

Cost of producing cremes = $0.45

Now,

let the number of caramels be 'x'

Thus,

Number of cremes = 30 - x

Profit = Selling price - Cost

3 = $12.50 - [ 0.25x + 0.45(30 - x) ]

or

[ 0.25x + 0.45(30 - x) ] = 12.50 - 3

or

0.25x + 13.5 - 0.45x = 9.50

or

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or

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6 0
3 years ago
The budget process involves doing all of the following except a. periodically comparing actual results with the goals b. establi
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Answer:

d. dismissing all managers who fail to achieve operational goals specified in the budget

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Price can change without the company being able to intervene, the same goes for consumer demand, foreign currency rates changes, and other variables in the budget.

Having that in mind, the accounting can measure the variance and check the efficiency and price influence in the result below expected.

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7 0
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Where a producer chooses the intensity level of its market coverage, which level is chosen to utilize the “shotgun” approach?
dsp73

Answer:

The level that utilizes the "shotgun" approach to market coverage is:

Intensive Distribution (mass coverage).

Explanation:

This marketing approach aims to reach many consumers through as many sales channels as possible.  In this situation, consumers have easy access to the goods or services.  The other approaches include Selective Distribution (where few outlets in specific locations are selected for the distribution of the goods and services) and Exclusive Distribution (where limited outlets are chosen because of the target market).

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