All categories

3 years ago

Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:

Business

1 answer:

34kurt3 years ago

8 0

Answer:

Option 4

Explanation:

In this question ,we have to compute the WACC which is shown below:

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

For Option 1, it would be

= (0.3 × 10%) × ( 1 - 40%) + (0.7 × 12.5%)

= 1.8% + 8.75%

= 10.55%

For Option 2, it would be

= (0.4 × 10.5%) × ( 1 - 40%) + (0.6 × 13%)

= 2.52% + 7.8%

= 10.32%

For Option 3, it would be

= (0.5 × 11%) × ( 1 - 40%) + (0.5 × 13.5%)

= 3.3% + 6.75%

= 10.05%

For Option 4, it would be

= (0.6 × 11.7%) × ( 1 - 40%) + (0.4 × 14.2%)

= 4.212% + 5.68%

= 9.89%

For Option 5, it would be

= (0.7 × 13%) × ( 1 - 40%) + (0.3 × 15.5%)

= 5.46% + 4.65%

= 10.11%

So based on this, the management should accept option 4 as it derives the best debt asset ratio

The weightage of equity would be come

= 1 - weightage of debt

You might be interested in

In two to three sentences, describe how making minimum payments on credit card balances increases the total cost.

rjkz [21]

Answer:

If you only make the minimum payment on your credit card, it could take years to pay off the balance. you could end up spending hundreds, in interest by the time the balance is required.

Explanation:

3 0

3 years ago

Mega Dynamics is considering a project that has the following cash flows:

NeTakaya

Answer:

The NPV of the project is $765.91 and option A is the correct answer.

Explanation:

To calculate the initial outlay or cost of the project, we will use the payback period of the project. The payback period is the time taken by the project's cash flows to cover up the initial cost.

A payback period of 2.5 years means that the initial cost was,

Initial cost = 2000 + 3000 + 3000 * 0.5

Initial cost = $6500

To calculate the NPV of the project, we use the following formula,

NPV = CF1 / (1+r) + CF2 / (1+r)^2 + ... + CFn / (1+r)^n - Initial cost

Where,

CF1, CF2 , ... represents the cash flow in year 1, cash flow in year 2 and so on.
r is the cost of capital

NPV = 2000 / (1+0.12) + 3000 / (1+0.12)^2 + 3000 / (1+0.12)^3 +

1500 / (1+0.12)^4 - 6500

NPV = $765.9137794 rounded off to $765.91

8 0

3 years ago

If you leave your job when should you notify a DSO so that CPT can be removed from your record? It is the responsibility of the

Reil [10]

Answer:

It is the responsibility of the student to notify the DSO within 5 business days of any changes to the employment status.

4 0

3 years ago

Your text describes the macroenvironmental factors that operate in the external environment by which acronym?

zubka84 [21]

Answer:

The acronym is PESTEL

Explanation:

P - Political factors affecting the economy e.g new government being elected.

E - Economic factors affecting the economy or the firm e.g changes in tax law.

S - Social factors affecting the economy e.g changes in population or consumers' belief.

T - Technological factors affecting the economy e.g new methods of producing goods or new methods of online banking

E - Environmental factors affecting the economy. e.g new pollution law

L - Legal factors affecting the economy e.g changes in labor law

5 0

3 years ago

Drewson Health Foods has 16 comma 000 shares of $ 1 par common stock outstanding, which were issued at $ 15 per share. Drewson

earnstyle [38]

Answer:

SE 157,000

Explanation:

We do shares outstanding times issued per share to get the total paid-in capital. Then subtract the retained earnigns negative balance to get the Drewson total stockholders equity

$16,000 \times 15 = 240,000 \\Retained \: Earnings \: (83,000) \\Stockholders \: Equity \: 157,000$

7 0

3 years ago