On 1/1//2015, XYZ leases a machine from Super LeaseCo for four years. At the end of the lease term, title passes to XYZ. Payment
s of $4,000 are made at the BEGINNING of each year 1/1/2015, 12/31/15, 12/31/16, AND 12/31/17). The machine has a useful life of 6 years, with no salvage value. XYZ uses straight-line amortization. Lessee interest rates is 6%. Fair value of machine is $14,692 which is the price that Super LeaseCo. paid for the machine. Assumption 1 - Record all required entries for XYZ for 2015-2020.
1 answer:
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Answer:
WACC 10.38305%
Explanation:
<em><u>First we solve for the source of financing:</u></em>
Expansion: 5,900,000
60% Equity: 3,540,000
Retained Earnins 2,000,000
then 1,540,000 will be common equity
40% debt: 2,360,000 It can raise up to 3,000,000 so it will be sufficient
D 2,360
E 1,540
RE 2000
V 5,900
Now we can solve for Weighted average cost of capital
Ke 0.15
Equity weight 0.261016949 (1,540,000 / 5,900,000)
Kre 0.12
RE Weight 0,338983 (2,000,000 / 5,900,000)
Kd 0.1
Debt Weight 0.4 ( 2,360,000 / 5,900,000)
t 0.4
WACC 10.38305%