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2 years ago

8

Branson works for a firm that is expanding into a completely new line of business. He has been asked to determine an appropriate

WACC for an averageminusrisk project in the expansion division. Branson finds two publicly traded standminusalone firms that produce the same products as his new division. The average of the two firm's betas is 1.40. Further, he determines that the expected return on the market portfolio is 11.00% and the riskminusfree rate of return is 3.00%. Branson's firm finances 70% of its projects with equity and 30% with debt, and has a beforeminustax cost of debt of 8% and a corporate tax rate of 20%. What is the WACC for the new line of business?

2 answers:

VikaD [51]2 years ago

8 0

Answer:

the WACC for the new line of business is 14.80%

Explanation:

Weighted Average Cost of Capital is the minimum return that a project must offer before it can be accepted.

<em>Capital Source Weight Cost Total</em>

Equity 70% 18.40% 12,88%

Debt 30% 6.40% 1,92%

Total 100% 14.80%

Calculation of Cost of Equity

The details available allow us to use the Capital Asset Pricing Model to find the Cost of Equity.

Cost of Equity = Risk Free Rate + Beta × Risk Premium

=3.00%+ 1.40×11.00%

= 18.40%

Calculation of Cost of Debt

We use the after tax Cost of Debt as follows :

Cost of Debt = Market Interest Rate × (1-tax rate)

= 8% × (1-0.20)

= 6.40%

Rashid [163]2 years ago

3 0

Answer:

11.86%

Explanation:

First we need to calculate the return on equity(Re).

re = rf + B(rm-rf)

re = 0.03 + (1.4)*(0.11-0.03) => 0.142 or 14.2%.

Now the formula for WACC is,

WACC = (re * %of Equity) + ((rd * %of Debt)(1-tax rate))

Hence this is calculated as,

WACC = (0.70*0.142)+((0.30*0.08(1-0.20))

WACC = 11.86% or 0.1186.

Hope this helps. Goodluck.

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Dennis, who consumes only grilled chicken sandwiches and salads with low-fat dressing, has a weekly income of $100 to spend on f

Kitty [74]

Answer:

1. buy more salads and fewer sandwiches.

Explanation:

As we know that

$\textup{MU}_{S}=\textup{Marginal utility of Sadwitches}$

$\textup{MU}_{SA}=\textup{Marginal utility of Salad}$

$\textup{P}_{S}=\textup{Price of Sanswithches}$

$\textup{P}_{SA}=\textup{Price of Salads}$

Therefore

$\frac{MU_{S}}{MU_{SA}}=\frac{P_{S}}{P_{SA}}$

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Now the price ratio is

$\frac{P_{S}}{P_{SA}}=\frac{\$3}{\$2}=1.5$

It is probable if you rising marginal utility numbering and reduce denominator marginal utility. If you reduce their intake, the MU of a food item will raise. Such decrease in the composition would make the quantity of the food element scarce. And its usefulness goes up. The Numerator here is sandwich MU. And to increase their marginal utility, you can reduce sandwich consumption.

Salad should need just the reverse. You raise salad intake so the MU reduces. Therefore you have to eat more salads and less chicken sandwiches to maximise the utility. So, salad is replaced by sandwiches for chicken.

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Nami is very good at research is skilled at developing instructional materials and knows about libraries and information

GrogVix [38]

The answer is: B) professional support services

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Which of the following is a major difference between a budget constraint and production possibilities frontier?

horrorfan [7]

Answer:

c

Explanation:

The Production possibilities frontiers is a curve that shows the various combination of two goods a company can produce when all its resources are fully utilised.

The PPF is concave to the origin. This means that as more quantities of a product is produced, the fewer resources it has available to produce another good. As a result, less of the other product would be produced. So, the opportunity cost of producing a good increase as more and more of that good is produced.

So, the PPF exhibits diminishing return. The slope of the PPF is different at different points. this makes the PPF a curve

the budget constraint is a straight line that shows the various combinations of goods a consumer can consume given her income. the budget constraint is a straight line because the slope is constant at each point on the curve

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The practice of making false statements about a property in order to lower its value and increase the buyer’s profit is called:

ArbitrLikvidat [17]

Answer:

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A rapid transit vehicle manufacturer produces two types of vehicles that have different dynamic characteristics and door I capac

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Your information is incomplete. Therefore, an overview of the capacity ratio will be given.

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It is calculated as:

= (Actual direct labor hours worked/budgeted direct labor hours) × 100%.

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