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PSYCHO15rus [73]
3 years ago
15

Westshore Diagnostics has 28,000 shares of common stock outstanding and the price is per share of $71 . The rate of return on th

eir stock is 13.40 percent. Westshore Diagnostics has 6,900 shares of 7.00 percent preferred stock outstanding at a price of $91.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $380,000 and currently sells for 107 percent of face. The yield to maturity on the debt is 7.84 percent. What is the firm's weighted average cost of capital if the tax rate is 39 percent?
Business
1 answer:
babymother [125]3 years ago
6 0

Answer :

Weighted average capital cost = 11.05%

Explanation :

As per the data given in the question,

(a)                                            (b)                                 (c = a × b)

Amount per share Bond price or share price Market value Weight     (c/Total)

Debt $380,000               107%                        $406,600              13.45%

Preferred stock 6,900     $91                           $627,900              20.77%

Common stock  28,000   $71                          $1,988,000            65.77%

Total                                                                   $3,022,500

Now the WACC is

Particulars Cost          Weight                     Weighted cost

Debt         4.78%             13.45%                        0.64%

Preferred stock 7.69%    20.77%                       1.60%

Common stock 13.40%   65.77%                       8.81%

WACC                                                                 11.05%

Working Notes:

Cost of debt = 7.84% × (1 - 39%)

= 4.78%

Cost of preferred stock = Dividend ÷ current price

=(7% × 100) ÷ 91

= 0.07692

= 7.69%

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Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house
aev [14]

Answer:

$532,500

Explanation:

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To compute this statement, the approach is to sum all direct costs associated with the service provided by the firm.

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Opening Inventory Of Materials                  $4,000

Add: The Purchase of Direct Materials       $<u>25,600</u>

Direct Material available                               $29,600

Subtract: Closing Inventory of materials    <u>   ($2600)</u>

The Direct Material Used for the year                                $27,000

Add:

Direct Labour Cost                                          $472,500

Variable Overhead Cost                                    $15,000

Fixed Overhead cost                                          $18,000

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1) Buy extended warranty
2) Not buy extended warranty

Criteria:
Practical and cost saving in the long-run

Evaluate Alternatives:
1) <span>Buy extended warranty </span>
       con:<span> pay additional $99. </span>
       pro: <span>5 year warranty coverage. </span>
       pro: repairs may be done at a local store

2) Not buy extended warranty
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