1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Kisachek [45]
3 years ago
10

Central Systems, Inc. desires a weighted average cost of capital of 7 percent. The firm has an after-tax cost of debt of 4 perce

nt and a cost of equity of 10 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
Business
1 answer:
Oksanka [162]3 years ago
8 0

Answer:

1  

Explanation:

Given that,

Weighted average cost of capital = 7%

After-tax cost of debt = 4 percent

Cost of equity = 10 percent

Let the debt of this firm be x, then the equity will be (1 - x),

wacc = (After-tax cost of debt × Debt) + (Cost of equity × Equity)

7% = (4% × x) + [10% × (1 - x)]

0.07 = 0.04x + 0.1 - 0.1x

0.07 = 0.10 - 0.06x

0.06x = 0.10 - 0.07

0.06x = 0.03

x = 0.5

Therefore, if the debt is 0.5 then the equity is 0.5.

Hence, the debt to equity ratio will be:

= 0.5 ÷ 0.5

= 1

The debt-equity ratio is 1 for the firm to achieve its targeted weighted average cost of capital.

You might be interested in
If the elasticity for computers at the current price is at 6.4, what would happen to total revenues if a computer manufacturer d
MA_775_DIABLO [31]
They would go down drastically fast.
5 0
3 years ago
Read 2 more answers
Components inc., a maker of vehicle parts, refuses to sell to diy repair inc., a national vehicle service firm. the maker convin
zloy xaker [14]

Components inc., a maker of vehicle parts, refuses to sell to diy repair inc., a national vehicle service firm. the maker convinces the engine parts company, a competitor, to do the same. this is a group boycott.

Under competition law, a group boycott is a type of secondary boycott, unless two or more competitors in the relevant market agree to deal with an actual or potential competitor of the boycotting firm. Refuse to do business with the company.

Example: The FTC challenged the actions of several groups of competing health care providers, such as physicians, and refused to do business with insurance companies or other purchasers on terms other than those mutually agreed upon. That amounted to a group boycott of the illegal group.

Learn more about group boycott here: brainly.com/question/13894564

#SPJ4

3 0
1 year ago
David's marketing research returned the finding that customers were staying away from his bookstore because of a lack of service
snow_tiger [21]

Answer:

The knowledge gap can be filled with a knowledge management strategy. It involves identifying the knowledge gap and vulnerabilities and setting strategies for each of these gaps. There are three types of gaps in strategic management: Knowledge gap, strategic gap, Relations gap. The knowledge gap occurs when the company doesn't know what it needs to know. similarly, David lacks the knowledge that the customers were staying away from his shop because of the lack of services.

6 0
3 years ago
Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods
pantera1 [17]

Answer:

The correct answer is C) purchase Canadian dollar put options.

Explanation:

A sale option (or put option) gives its holder the right - but not the obligation - to sell an asset at a predetermined price until a specific date. The seller of the option to sell has the obligation to buy the underlying asset if the holder of the option (buyer of the right to sell) decides to exercise his right.

The purchase of put options is used as hedging, when price falls are anticipated in shares that are held, since by means of the purchase of Put the price is established from which money is earned. If the stock falls below that price, the investor earns money. If the share price falls, the profits obtained with the sale option compensate in whole or in part for the loss experienced by said fall.

Losses are limited to the premium (price paid for the purchase of the sale option). Earnings increase as the share price falls in the market.

5 0
3 years ago
In a financial crisis, the unemployment rates will likely be _____ and the number of bankruptcies will likely be _____.
bearhunter [10]

I'm pretty sure both the unemployment rate and the bankruptcy rate would be higher.

4 0
3 years ago
Read 2 more answers
Other questions:
  • Tv advertising is considered to be particularly advantageous because ________.
    14·1 answer
  • If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale a
    7·1 answer
  • When you encounter an organization where employees are quite intense, focused, and determined to win, you have encountered an or
    12·1 answer
  • Renting provides _________ flexibility but can lead to _________ costs in the long-term
    15·1 answer
  • Assume that ABCO is a U.S. multinational corporation. Its foreign subsidiaries must report income in their respective countries
    12·1 answer
  • Assume the following scenarios.
    13·1 answer
  • Western Electric has 21,000 shares of common stock outstanding at a price per share of $61 and a rate of return of 15.6 percent.
    6·1 answer
  • The All-Star Basic Value Fund's portfolio is valued at $250 million. The fund has liabilities of $23 million, and the fund’s net
    8·1 answer
  • What type of loan requires you to pay the interest accumulated during college
    5·1 answer
  • DJ Company, a manufacturer, uses the indirect method for preparing its statement of cash flows. The company has provided the fol
    11·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!