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butalik [34]
3 years ago
11

1. Sorensen Systems Inc. is expected to pay a $2.00 dividend at year end (D1 = $2.00), the dividend is expected to grow at a con

stant rate of 5.0% a year, and the common stock currently sells for $50.00 a share. The before-tax cost of debt is 7.00%, and the tax rate is 45%. The target capital structure consists of 40% debt and 60% common equity. What is the company’s WACC if all the equity used is from retained earnings? (Answer: %)
Business
1 answer:
Alinara [238K]3 years ago
4 0

Answer:

6.94%

Explanation:

The computation of the company WACC is shown below:

= Weightage of debt × cost of debt × (1 - tax rate)  + (Weightage of  common stock) × (cost of common stock)

where,

Cost of common stock is

= Dividend ÷ Stock price + Growth rate

= $2 ÷ 50 + 5.0%

= 4% + 5%

= 9%

So, the company WACC is                                                                              

= (0.40 × 7%) × ( 1 - 45%) +  (0.60 × 9%)

= 1.54% + 5.4%

 = 6.94%

Hence, the company WACC is 6.94%

You might be interested in
On January 1, 2018, the general ledger of Dynamite Fireworks includes the following account balances: Accounts Debit Credit Cash
Elena-2011 [213]

Answer:

8. Adjusting for Rent    

Rent Expense  575  

Prepaid Rent            575

9. Adjusting for suppliers    

Supplies Expense 4,100  

Supplies                           4,100

10. Adjusting for Unearned Revenue    

Unearned Revenue; 3425  

Service Revenue           3425

11. Adjusting for salaries payable    

Salaries Expense     5590  

Salaries Payable           5590

12. Closing Revenue accounts    

Service Revenue   29225  

Income Summary            29225

13. Closing expense accounts  

Income Summary    18665  

Salaries expense       17390

Supplies Expense       700

Rent Expense        575

Explanation:

8. Rent per month is $575. Since the month ended, the advance payment was expired. Therefore, prepaid rent for the first month becomes credit, and rent expense is debit. Prepaid rent is an advance payment paid to the owner for using the store temporarily. Generally, rent has to be paid at the beginning of the month. Therefore, whenever the month ends, the advance payment becomes an expense for a company.

9. Supplies Expense calculations for the month of January:

Beginning supplies      = $3,400

Add: Purchase              <u>= $3,800</u>

Total supplies at hand  = $7,200

Less: Ending supplies   <u>= $3,100</u>

Total Supplies expense= $4,100

10. Unearned and service revenue calculation:

Unearned Revenue for the month of January            = $4,000

Service provided by the company during the month = $3,425

Unearned Revenue at the end of the month               = $   575

Since the company provided services for which they took advance payment, the unearned revenue (a liability account), reduced. Therefore, unearned revenue is reversed to debit.

11. Salaries expense is an expense, therefore, it is a debit. Salaries payable is a liability, therefore, it is a credit entry. Salaries payable arises due to unpaid salaries for the employees. As there are no calculations regarding salaries expense, the amount of $5,590 is the debit for expenses (Salaries), and credit for liabilities (Salaries payable).

12. To close the revenue account, the account must be reversed. Closing entry is generally given for revenue and expense accounts. Therefore, all the revenues must be debit to income summary's credit to close the accounts. Total service revenues:

3. Provided service to the customer = $25,800

10. (ADD): Service provided to the customer who paid in advance = $ 3,425

Total: $(25,800 + 3,425) = 29,225.

13. Since the expense accounts deduct from income, therefore, income summary needs to be debit, and expense accounts need to be a credit to close the account. Therefore, all the expense accounts (Rent, salary, and supplies expenses) must be a credit to close them. Adding all the items, we can get the income summary balance.

6 0
3 years ago
Illustrate the following with supply and demand curves:
Alex_Xolod [135]

Answer:

Explanation:

Illustrate the following with supply and demand curves:

a. With increased access to wireless technology and lighter weight, the demand for tablet computers has increased

substantially. Tablets have also become easier and cheaper to produce as new technology has come online. Despite the shift of demand, prices have fallen.

b. Cranberry production in Massachusetts totaled 1.85 mil-lion barrels in 2013, a 15 percent decrease from the 2.12 million barrels produced in 2012. Demand decreased by even more than supply, dropping 2013 prices to $32.30 per barrel from S47.90 in 2012.

c. During the high-tech boom in the late 1990s, San Jose office space was in high demand and rents were high. With the national recession that began in March 2001, however, the market for office space in San Jose (Silicon Valley) was hit hard, with rents per square foot falling. In 2005, the employment numbers from San Jose were rising slowly and rents began to rise again. Assume for simplicity that no new office space was built during the period.

d. Before economic reforms were implemented in the countries of Eastern Europe, regulation held the price of bread substantially below equilibrium. When reforms were implemented, prices were deregulated and the price of bread rose dramatically. Asa result the quantity of bread demanded fell and the quantity of bread supplied rose sharply.

e. The steel industry has been lobbying for high taxes on imported steel. Russia, Brazil, and Japan have been producing and selling steel on world markets at $610 per metric ton, well below what equilibrium would be in the United States with no imports. if no imported steel was permitted into the country, the equilibrium price would be 970 per metric ton. Show supply and demand curves for the United States, assuming no imports; then show what the graph would look like if U.S.

buyers could purchase all the steel that ' they wanted from world markets at $610 per metric ton; label the portion of the graph that represents the quantity of imported steel.

The detailed answer is attached

5 0
3 years ago
.3Simba and Zola are married but file separate returns. Simba received $80,000 of salary and $1,200 of taxable dividends on stoc
Sidana [21]

Answer:

Zola's gross income is worked out under community property state;

Explanation:

community property state

Dividends ($1200/2)                               $600

Interest on certificate of deposit  ($900/2)     $450

Salary               ($80,000/2)                          $40,000

Gross income                                         $41,050

Under community law system, all the property is deemed to be community property and is held jointly by the spouses unless the property is acquired before marriage or inheritance or gift.

For federal tax purposes, each spouse is taxed one and half of the property belonging to community. Therefore Zola is taxed 50% for the incomes of her spouse as well including the interest on certificate of deposit.

6 0
3 years ago
We are evaluating a project that costs $644,000, has an eight-year life, and has no salvage value. Assume that depreciation is s
AleksandrR [38]

Solution :

a).

Particulars                                                Details

Selling price per unit                                 37

Less : variable cost per unit                     -21

Margin per unit                                           16

No. of units sold per unit                       70,000

Gross margin                                        11,20,000

Less : fixed cost                                     - 7,25,000

Profit before depreciation and tax       3,95,000

Less : depreciation                                -80,500

Profit before tax                                     3,14,500

Less : Tax                                               -1,10,075

Net profit per year                                 2,04,425

Project Cost                                           6,44,000

Accounting breakeven point in years     3.15

b).

Calculating the base Cash - Cash flow and NPV

Particulars                                                       Amount

Net profit per year                                        2,04,425

Add : depreciation                                         80,500

Base Cash cashflow                                     2,84,925

Required rate of return                                    15%

Present value of base cash cash flow        12,78,550

received in 8 years.

Project cost                                                  -6,44,000

NPV                                                               6,34,550

The present value of base cash cash flow received in 8 years is calculated as Present value of annuity received at the end of each year $ 2,84,925 at the rate of interest 15% for a period of 8 years.

The sensitivity of the NPV to 500 units decrease in projected sales :

Particulars                                                          Details

Selling price per unit                                            37

Less : variable cost per unit                                -21

Margin per unit                                                     16

Number of units sold per year                          69,500

Gross margin                                                      11,12,000

Less : fixed cost                                                -7,25,000

Profit before depreciation and tax                   3,87,000

Less : depreciation                                            -80,500

Profit before tax                                                 3,06,500

Less : tax                                                            -1,07,275

Net profit per year                                             1,99,225

Add : depreciation                                              80,500

Base Cash cashflow                                          2,79,725

Required rate of return                                         15%

Present value of base cash cash flow              12,55,216

received in 8 years.

Project cost                                                    -6,44,000

NPV                                                                6,11,216

Original NPV                                                  6,34,550

Sensitive NPV                                                  -23,334

c).

Particulars                                                              Details

Selling price per unit                                               37

Less : variable cost per unit                                   -20

Margin per unit                                                        17

No. of units sold per year                                     70,000

Gross Margin                                                         11,90,000

Less : fixed cost                                                     -7,25,000

Profit before depreciation and tax                       4,65,000

Less : Depreciation                                                -80,500

Profit before tax                                                     3,84,500

Less : tax                                                                -1,34,575

Net profit per year                                                  2,49925

Add : depreciation                                                   80,500

Operating cash flow                                               3,30,425

Original operating cashflow                                   2,84,925

Sensitivity of OCF                                                      45,500

7 0
3 years ago
Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 of transportation in cost, $800 to train an e
Licemer1 [7]

Answer:

15,160

Explanation:

Net 20 terms: Full amount ready between 20 days, occasionally written as n/20.

Terms 2/10. n/30: with a 2% discount for settlement within 10 days, net 30 implying that the full amount will be ready between 30 days.

The terms 1/10, n/30: with a 1% discount for settlement within 10 days time, net 30 meaning the full amount is going to be ready between 30 days.

Terms 5/10, 2/30, n/60: 5% for settlement within 10 days, 2% for settlement in 11-30 days, full amount due within 60 days.

Net 30 Terms EOM: Payment will be ready in full 30 days after the end of the month (EOM) in which the invoice was given for.

7 0
3 years ago
Read 2 more answers
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