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7. GH Company has $5000 of debt and $20,000 of equity. GH pays 5% interest on all of its debt. GH has an equity beta of 2. The m

Artyom0805 [142]

Answer:

WJK's Unlevered Beta = 1.7

Expected rate of return = 13%

Financial leverage = 0.25

Explanation:

given data

debt = $5000

equity = $20,000

interest = 5%

equity beta = 2

market risk premium = 5.5%

risk free rate of return = 2%

marginal tax rate = 30%

solution

we find here Unlevered Beta that is

Unlevered Beta = $\frac{Beta (Levered)}{{1 + [ (1- tax rate)* (\frac{Debt}{Equity})]}}$ ...........................1

as that we can say

WJK's Unlevered Beta = $\frac{Beta of GH (Levered)}{{1 + [ (1- tax rate)* (\frac{Debt of GH}{Equity of GH})]}}$

put here value we get

WJK's Unlevered Beta = $\frac{2}{{1 + [ (1- 0.3)* (\frac{5000}{20000})]}}$

WJK's Unlevered Beta = $\frac{2}{1.18}$

WJK's Unlevered Beta = 1.7

and

Expected rate of return on equity of GH using CAPM = Risk free rate + Beta of GH × (Market risk premium)

Expected rate of return = 2% + 2 × (5.5%)

Expected rate of return = 13%

and

Financial leverage will be here

Financial leverage = $\frac{Debt}{Equity
}$

Financial leverage = $\frac{5000}{20000
}$

Financial leverage = 0.25

5 0

4 years ago

Pulau Penang Island Resort. Theresa Nunn is planning a 30-day vacation on Pulau Penang, Malaysia, one year from now. The present

Studentka2010 [4]

Answer:

A) $10124.83

B) 1.0125%

Explanation:

1) We are told that the present charge for a luxury suite is RM 1,045/day.

This means that the charge after one year will also include inflation charge.

Thus;

Charge after 1 year = 1045 × (1 + 2.75%)

= 1045 × 1.0275 = RM 1,073.7375 per day

For 30 days, charge is;

1073.7375 × 30 = RM 32212.125

Spot exchange rate in 1 year = spot rate × (1 + RM inflation rate)/(1 + US inflation rate)

Spot exchange rate in 1 year = 3.135 × (1 + 2.75%)/(1 + 1.25%) = 3.135 × 1.0275/1.0125 = 3.1815

Cost needed one year to pay for 30 day vacation = 32212.125/3.1815 = $10124.83

B) percent by which the dollar cost will have gone up = (10124.83/10000) × 100% = 1.0125%

3 0

3 years ago

How many cowboy hats can you fit on your head

Gekata [30.6K]

Answer:

7

Explanation:

5 0

3 years ago

Read 2 more answers

Henry Carr and Noreen Mason formed a partnership, dividing income as follows: annual salary allowance to Carr of $40,000; intere

beks73 [17]

Answer:

$192,000

Explanation:

Henry Carr and Noreen Mason formed a partnership, dividing income as follows:

1. Annual salary allowance to Carr of $40,000;

2. Interest of 8% on each partner's capital balance on January 1;

3. Any remaining net income is divided equally.

Carr and Mason had $60,000 and $140,000 in their January 1 capital balances, respectively.

Net income for the year was $440,000.

Total Net Income = 440,000

less:Annual salary allowance to Carr of ($40,000)

less:Interest of 8% on each partner's capital: 8% x ($60,000 + $140,000) which is (16000)

Balance to be divided among partners = 384,000

Net income to be distributed to Car = $192,000

6 0

4 years ago

Stinehelfer Beet Processors, Inc., processes sugar beets in batches.

babunello [35]

Answer:

$19

Explanation:

The computation of the financial advantage or disadvantage is shown below:

= Sale value after processed further - cost of processed further - sale value without processed further

= $91 - $29 - $43

= $19

Simply we deducted the cost of processed further and the sale value without processed further from the Sale value after processed further so that the correct amount can come

All other information which is given is not relevant. Hence, ignored it

5 0

4 years ago