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kvasek [131]
3 years ago
15

Baxter Inc. has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. The company's after-tax cost

of debt is 7%, its cost of preferred stock is 11%, its cost of retained earnings is 15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion?A) 11.20%B) 12.00%C) 13.80%D) 14.45%
Business
1 answer:
VashaNatasha [74]3 years ago
4 0

Answer:

B)  WACC 12.00000%

Explanation:

WACC = K_e(\frac{E}{E+P+D}) + K_p(\frac{P}{E+P+D}) + K_d(1-t)(\frac{D}{E+P+D})

Ke 0.15 (we are asked for the WACC if retained earnings are used, so we ould assing RE rate

Equity weight 0.55

Kp 0.11

Preferred Weight  0.2

Kd(1-t) (after-tax debt) 0.07

Debt Weight 0.3

WACC = 0.15(0.55) + 0.11(0.15) + 0.07(0.3)

WACC 12.00000%

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Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the
NNADVOKAT [17]

Answer: Option(d) is correct.

Explanation:

Given that,

Purchases a bond = $10,000

Bond pays at the end of the first, second, and third years = $400

Bond pays upon its maturity at the end of four years = $10,400

(i) Principal amount of this bond = $10,000

It is the issue price of the bond.

(ii) The coupon rate of the bond = \frac{Interest\ Received}{Face\ value\ of\ bond}\times100

                                                     = \frac{400}{10,000}\times100

                                                     = 4% per year

(iii) The term of this bond is 4 years, as it was matured after 4 years.

7 0
3 years ago
40 points Write a short note discussing how social factors affect economic and political systems
vodka [1.7K]

economic develop increases the standard of living in a country. Political factors influence economic development by positively or negatively influencing the process of development. Some important political factors include: Regime type, which is the form of government operating in a country hope this helps plus i got this from my friend

6 0
4 years ago
a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)? b. If the​ bond's yield to maturit
mina [271]

Answer:

A. 7.5

N=20

PV=1034.74

PMT= 1000*8% / 2

PV = 1000

B. $934.96

N=20

I= 4.5

PMT = 40

FV = 1000

Explanation:

3 0
3 years ago
After earning your ba, you have to decide whether to accept the offer of a job that will pay you $45,000 per year or spend an ad
Thepotemich [5.8K]

$67,500

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3 0
4 years ago
You are valuing a company that is projected to generate a free cash flow of $10 million next year, growing at a stable 3.0% rate
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Answer:

$2.67 per share

Explanation:

To start with,we calculate the present worth of the company using the below formula:

present worth of the company=free cash flow*(1+g)/r-g

g is the growth rate of the free cash flow which is 3.0%

r is the cost of capital of 10%

present worth=$10 million*(1+3%)/10%-3%

                     =10.3/7%

                     =$ 147.14  million

However ,the value of total equity is computed thus:

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equity=$ 147.14  +$8.5-$22

equity=$133.64 million

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8 0
3 years ago
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