Jacob Company sold a $1,000 par value, non-callable bond that has 20 years to maturity and a 7.00% annual coupon that is paid an
nually. The bond is issued for $925, and the company’s tax rate is 40%. What is the component cost of debt for use in the WACC calculation?
1 answer:
You might be interested in
Answer:
MAD: 10.04, 11.53
MAPSE: 10% , 12%
MSE : 146.33, 178.72
Bias : -0.56 , -0.96
3-week moving average method is better
Explanation:
i ) Evaluate MAD ( average of absolute errors )
using 3 week moving average
= 10.04
using simple exponential smoothing
= 11.53
ii) MAPSE ( average of absolute percentage error )
using 3 week moving average
= 10%
using simple exponential smoothing
= 12%
iii) MSE ( average of Squared Errors )
3 week MV = 146.33 , Simple exponential smoothing = 178.72.
iv) Bias
3 week MV = -5/9 = -0.56, Simple exponential smoothing = -8.69/9 = -0.96.
v) TS ( Total error / MAD )
3 week MV = -5 / 10.04 = -0.49 ,
simple exponential smoothing = -8.69 / 11.53 = -0.75
b) I prefer 3-week moving average based on the values of MAD , MAPE, MSE, bias and TS which shows that there is a better estimate when using the 3 -weeks moving average.
Attached below is the Tabular calculations of the required parameters for the question
