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
Bogdan [553]
3 years ago
10

Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information: the f

irm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00 the company's tax rate is 40% the risk-free rate is 4.50% the market risk premium is 5.50% the stock's beta is 1.20 the target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. Daves' WACC is closest to:
Business
1 answer:
levacccp [35]3 years ago
3 0

Answer:

Explanation:

First, find the YTM of the bond (rD), you can do this with a financial calculator using the following inputs;

Maturity of the bond : N = 20

Annual coupon payment; PMT = 8%*1000 = 80

Face value; FV = 1000

Price of the bond ; PV = -1,050

then CPT I/Y = 7.51% (this is the Pretax cost of debt; the rD)

Next, find the cost of equity (rE) using CAPM;

CAPM; r = risk free + beta (Market risk premium)

rE = 0.0450 + 1.20(0.0550)

rE = 0.0450 + 0.066

= 0.111 or 11.1%

Next, WACC formula = wE*rE + wD*rD(1-tax) whereby;

w = weight of..

rD= pretax cost of debt

WACC = (0.65*0.111) + [0.35*0.0751(1-0.40) ]

WACC = 0.07215 + 0.015771

= 0.0879

Therefore, WACC = 8.79%

You might be interested in
Organizations use ________ to identify where their process expectations differ from sap capabilities. select one:
Dvinal [7]
Organizations use gap analysis to identify where their process expectations differ from sap capabilities. 

A gap analysis allows a company to compare how they performed against what level of performance they would like to be at. This allows the company to see how close they are at achieving their goal and gives them a way to work on what they need to get there. 
4 0
3 years ago
The epa tries to balance protecting business interests with protecting
Y_Kistochka [10]
The epa tries to balance protecting business interests with protecting the environment. EPA stands for Environmental Protection Agency. It <span> is an </span>agency<span> of the Federal government of the United States which was created for the purpose of </span>protecting <span>human health and the </span><span>environment.</span>
4 0
3 years ago
Read 2 more answers
The following is not a distinguishing characteristic of a life estate.
CaHeK987 [17]

Answer:

The correct answer is letter "B": Holders of future interest own only a reversionary interest.

Explanation:

A life estate is a grant provided by the owner of a property to another individual for his or her lifetime. That individual -<em>called the life tenant</em>, is right to use the property at will bound only to waste. The distinguishing characteristics of the life estate imply that <em>holders of future own revisionary or remainder interest</em>, and that <em>the estate could be created by agreement from private parties or by law under prescribed scenarios</em>.

6 0
3 years ago
Which of the following elements establish an organization's pay structure?A. pay ranges and pay differentialsB. cost control and
mario62 [17]

The correct answer is E; job structure and pay level.

Further Explanation:

Each company has different jobs and pay for their employees. Many workers start a job at entry level positions and will rise higher in the company the more time they are there.

Each job will pay differently and each job will have different levels of pay. This is how the pay structure is established in large companies. State and Federal government jobs always operate on a pay structure such as this.

Learn more about pay structure at brainly.com/question/5044592

#LearnwithBrainly

3 0
3 years ago
Farm Country and Industry Country are two neighboring countries. Both countries produce only one​ good: good X. Production in bo
matrenka [14]

Answer:

B) the same amount of capital and labor

Explanation:

Only an increase in productivity shifts the production function upward given that all factors of production remain the same. Generally technology improves productivity and causes those shifts.  

Productivity measures the rate of output per unit of input. E.g. I write 10 pages per hour. If my writing productivity increases, I will write 12 pages per hour. Labor productivity is measured by the amount of output produced per hour worked.

3 0
3 years ago
Other questions:
  • For the gillette fusion razor, over 60 percent of men who tried the razor adopted the product permanently. these men are known a
    7·1 answer
  • Clay's fishing shop's beginning inventory is $70,000 and ending inventory is $36,500. what was clay's average inventory?
    11·1 answer
  • A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise
    11·1 answer
  • A few years ago, in order to gain market share, Blackboard™, a well-known management system software company used by many colleg
    8·1 answer
  • Many consumers buy products that they perceive to have recognition, prestige and status, which would be considered ________needs
    8·1 answer
  • Bonita Realty Management Co. received a check for $32,400 on August 1, which represents a one year advance payment of rent on an
    8·1 answer
  • George received an e-mail that threatened to release his personal financial data unless he paid a fee. That situation is an exam
    11·2 answers
  • Link Company uses a process cost system and the weighted average method. During the year the company completed 1,300 units of pr
    15·1 answer
  • ryugvbhjwfbdussssdjvvvvvvvvvvvvvvvjjjjjjjjjjfjfjffffffjffffffffffffffffffffffjjjjjjjjjjjjjjjjjjjjjjjj
    5·1 answer
  • Four-year-old jewel thinks that all grown-ups are mommies or daddies. What has jewel used to classify adults in this way?.
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!