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4 years ago

Curvilinear costs increase as volume of activity increases, but at a nonconstant rate.

1 answer:

4 0

That statement is true

Curvilinear cost is an irregular cost that increases at different rates as the output increases. For example: Labor cost that is paid hourly
When the amount of work/output is increased, employees need more hour to finished the jobs, which will increase the overall labor cost

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What are the advantage and dis advantage of advertising for a hotel?

Lana71 [14]

Answer:

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Explanation:

Pros Cons

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Increases sales Ad cost might exceed sales

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3 years ago

Why is the location of a business important to the success of that business?

Anna007 [38]

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3 years ago

You’ve ridden in an airplane many times because your dad is a pilot. This means that you are qualified to be hired as pilot for

qaws [65]

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3 years ago

Read 2 more answers

Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck

vova2212 [387]

Answer:

falls

Marla's architectural design services are no longer bought by Chuck once they're married

Explanation:

As a result, GDP falls because Marla's architectural design services are no longer bought by Chuck once they're married.

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3 years ago

Air Tampa has just been incorporated, and its board of directors is grappling with the question of optimal capital structure. Th

irakobra [83]

Answer:

a. Unlevered beta = 1.12

b. Required rate of return on equity = 15.60%

c-1. rs = 16.37%

c-2. rs = 17.40%

c-2. rs = 18.81%

Explanation:

a. Estimate the beta of an unlevered firm in the commuter airline business based on Jaxair's market-determined beta.

Levered beta = Unlevered beta * (1 + (D/S)(1 - T))

Therefore, we have:

Unlevered beta = Levered beta / (1 + (D/S)(1 - T)) .............. (1)

Where:

Levered beta = Jaxair's market-determined beta = 1.8

D = Debt ratio = 45%, or 0.45

S = Equity ratio = 1 - D = 1 - 0.45 = 0.55

T = Federal-plus-state tax rate = 25%, or 0.25

Substituting the values into equation (1), we have:

Unlevered beta = 1.8 / (1 + (0.45/0.55)(1 - 0.25)) = 1.12

b. Now assume that rd= rRF= 10% and that the market risk premium RPM for an unlevered commuter airline. 5%. Find the required rate of return on equity

Required rate of return on equity = ro = Rf + beta(Rm - Rf) .............. (2)

Where;

rd = Rf = 10%, or 0.10

beta = Unlevered beta = 1.12

(Rm - Rf) = market risk premium = RPM for an unlevered commuter airline = 5%, or 0.05

Substituting the values into equation (2), we have:

Required rate of return on equity = ro = 10% + 1.12(5%) = 10% + (1.12 * 5%) = 15.60%

c. Air Tampa is considering three capital structures: (1) $2 million debt, (2) $4 million debt, and (3) $6 million debt. Estimate Air Tampa's rs for these debt levels.

c-1. $2 million debt

D = Debt = $2 million

Value of unlevered firm = $14 million

T = Tax rate at start-up = 15%, or 0.15

Value of lerevered firm = Value of unlevered firm + (Debt * T) = $14 + ($2 * 15%) = $14.30 million

S = Value of equity = Value of lerevered firm - Debt = $14.30 - $2 = $12.30 million

rs = ro + ((ro - rd) * (D / S) * (1 - T)) ................... (3)

Where;

ro = 15.60%

rd = Rf = 10%, or 0.10

D = Debt = $2 million

S = Value of equity = $12.30 million

T = Tax rate at start-up = 15%, or 0.15

Substituting the values into equation (3), we have:

rs = 15.60% + ((15.60% - 10%) * (2 / 12.30) * (1 - 0.15)) = 16.37%

c-2. $4 million debt

D = Debt = $4 million

Value of unlevered firm = $14 million

T = Tax rate at start-up = 15%, or 0.15

Value of lerevered firm = Value of unlevered firm + (Debt * T) = $14 + ($4 * 15%) = $14.60 million

S = Value of equity = Value of lerevered firm - Debt = $14.60 - $4 = $10.60 million

Substituting all the relevant values into equation (3), we have:

rs = 15.60% + ((15.60% - 10%) * (4 / 10.60) * (1 - 0.15)) = 17.40%

c-3. $6 million debt

D = Debt = $6 million

Value of unlevered firm = $14 million

T = Tax rate at start-up = 15%, or 0.15

Value of lerevered firm = Value of unlevered firm + (Debt * T) = $14 + ($6 * 15%) = $14.90 million

S = Value of equity = Value of lerevered firm - Debt = $14.90 - $6 = $8.90 million

Substituting all the relevant values into equation (3), we have:

rs = 15.60% + ((15.60% - 10%) * (6 / 8.90) * (1 - 0.15)) = 18.81%

7 0

3 years ago