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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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Walmart began offering low-priced extended warranties on home electronics after learning that its rivals such as Best Buy derive
LenaWriter [7]

Complete/Correct Question:

Walmart began offering low-priced extended warranties on home electronics after learning that its rivals such as Best Buy derived most of their profits from extended warranties. According to the Stalk and Lachenauer book, this is an example of the strategy to

A) plagiarize with pride.

B) deceive the competition.

C) devastate rivals profit sanctuaries.

D) unleash massive and overwhelming force

Answer:

c, devastate rivals profit sanctuaries

Explanation:

For Walmart to start making as much or more profits than its rival, Best Buy, it decided to head in the same direction as Best Buy by offering low-priced extended warranties on home electronics.

This action simply means that Walmart has infiltrated the profit strategy system of Best Buy and is using that a a competitive edge to also increase customer base as people will prefer to go Walmart as it has become cheaper.

Devastating rivals profit sanctuaries therefore means targeting the area or strategy of rivals to make more profit.

Cheers.

8 0
3 years ago
FCCLA's central focus is on the ________.​
Lana71 [14]

Answer:

variety of youth concerns

6 0
2 years ago
Cost accounting is concerned with: Multiple Choice accumulation and determination of product, process or service cost. income me
Vinvika [58]

Answer:

D. All of the above.

Explanation:

Those stated are all concerned with cost accounting.

4 0
3 years ago
LO 7.2What operating budget exists for manufacturing but not for a retail company?
belka [17]

Answer:

Production Budget

Explanation:

Production Budget is usually substituted <em>with</em> Purchasing budget for a retail company.

The operating budget usually consist of the:

  • sales budget,
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  • manufacturing overhead budget.

However, for a retail company that usually do not produce their products or inventory but purchase them, the Production Budget is usually substituted <em>with</em> Purchasing budget or merchandise inventory to be purchased; meaning since they do not have raw materials they<em> substitute </em>the number of units to be purchased, to the number of units to be produced.

8 0
3 years ago
Sawaya Co., Ltd, of Japan, is a manufacturing company whose total factory overhead costs fluctuate considerably from year to yea
coldgirl [10]

Answer:

Explanation:

1. Indirect Material variable cost Per Direct Labor HR 5000000/50000=100

Indirect Material (variable) 100*75000 =7500000

Rent Fixed 6000000

Hence total Maintenace Fixed =17625000-7500000-600000= 4125000

2.

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Cost 3250000 4125000 875000 [4125000-3250000]

Activities 50000          75000   25000

variable Portion of Maitencance cost =875000/25000= 35.00

Fixed cost=4125000-75000*35=1500000

Variable cost=35

cost formula for maintenance= 1500000+35b

3.

Indirect Material (variable) 100*70000 = 7000000

Rent Fixed                      6000000

Maintenance cost = 1500000+35*70000=3950000

5 0
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