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podryga [215]
3 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?
Business
2 answers:
VikaD [51]3 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]3 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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Answer:

Very small or no dividend

Explanation

Dividend is simply the distribution of profit made by company, firm e.t.c to its shareholders. Most startup company do pay little dividend due to the profit outcome but others do not. It is necessary to pay dividend to shareholders as it shows your devotion and commitment to look after and be in one mind with investors.

most companies that are just startups do not pay a dividend mostly during the early stage of growth. The revenue derived from startup is used to grow and develop the company and not to share with shareholders but sharing little is not bad a all.

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5 0
3 years ago
Fiscal policy refers to the idea that aggregate demand is affected by changes in Group of answer choices the money supply govern
Alik [6]

Answer:

All answers are correct except Money Supply

Explanation:

Fiscal policy affects aggregate demand through government spending and taxes. Government may increase taxes to increase revenue or discourage the consumption of a product. On the flipside, they may reduce taxes to stimulate spending, redistribute income, increase aggregate demand among other objectives.

Money supply is a monetary policy and it is used by the central bank to achieve certain objectives (reduce inflation, stimulate growth, increase demand, etc.)

Government spending is a fiscal policy that government uses to achieve a set of objectives (i.e. to supply goods and services that are not provided by the market or private sector – construct bridges, provide health facilities, social programmes for the poor among others).

Taxes – Tax is a fiscal policy tool used by the government to generate revenue, encourage or discourage the consumption of certain products or affect aggregate demand through income redistribution.  

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3 years ago
1
ValentinkaMS [17]

Answer:

B.enables production to be ahead of demand.

Explanation:

<em>One of the benefits of a wholesale warehouse in the chain of distribution is that it </em><em>enables production to be ahead of demand</em><em>.</em>

A warehouse generally represents a large house where goods/products are kept prior to their distribution for sale.

The use of a warehouse offers several advantages to producers. These include:

  • adequate protection and preservation of products
  • regular flow of goods irrespective of their period of production
  • continuity in the production process in order to stay ahead of market demand
  • easy handling of products
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<em>Hence, the correct option is B.</em>

4 0
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Mandarinka [93]

Answer:

See below

Explanation:

Given the above information, margin is computed as;

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Margin = 9.26%

Therefore, the division's margin used to compute ROI is closest to 9.26% approximately

7 0
3 years ago
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