Answer:
14.27%
Explanation:
Unlevered value = [Expected earnings before interest and taxes × (1- tax rate)]/Unlevered cost of capital
Unlevered value = [$87,200 x (1- 0.35)]/0.12 = $472,333.33
Levered value = Unlevered value + (Tax rate × Debt market value)
Levered value = $472,333.33 + (0.35 x $227,000) = $551,783.33
Value of equity = Levered value - Debt market value
Value of equity = $551,783.33 - $227,000 = $324,783.33
Cost of equity = Unlevered cost of capital + [(unlevered cost of capital - coupon rate) × (Debt market value/Value of equity) × (1 - Tax rate)]
Cost of equity = 0.12 + [(0.12 - 0.07) × ($227,000/$324,783.33) × (1 - 0.35)] = 0.1427, or 14.27%
Therefore, the firm's cost of equity is 14.27%
Answer:
Deposited amount will decrease by 1% and $2,000
Explanation:
Inflation rate will effect the value of money due to decrease in purchasing power of the currency holder.
We will use following formula to calculate the impact
Nominal rate = Real interest rate + Inflation rate
5% = Real interest rate + 6%
Real interest rate = 5% - 6% = -1%
The deposited amount will be decreased by 1%.
Deposit value = $200,000 x ( 1 - 1% ) = $198,000
Decrease in value = $200,000 - $198,000 = $2,000
Answer:
C. $17.25 million
Explanation:
In case of an acquisition, the assets are valued at their fair value and we will also include all unrecorded liabilities. Goodwill will be the excess payment over the net assets of the company. Excess fair value of land means that assets would increase by that amount to arrive at their fair value. Also, We have to include unrecorded liabilities in the total liabilities
Net Assets = Fair value of assets - Total liabilities
Or, Net Assets = (Book value of assets + Excess Fair value of land) - (Book value of liabilities + unrecorded liabilities)
Or, Net Assets = ($261 million + $3 million) - ($172.50 million + $6.75 million) = $84.75 million
Amount paid to acquire = $102 million
Goodwill = $102 million - $84.75 million = $17.25 million
A fair value option is the alternative for a business to record its financial instruments at the fair values. Liabilities are company's financial debts or obligations that arise in the course of business operations. They may be long term or short term. In this case, if the fair value of the liability decreases, the firm should respond by crediting the unrealized Holding Gain/loss in the income account.
Answer:
The <em>covenant of good faith and fair dealing</em> simply requires all the parties to a contract to deal in an even-handed manner such that one party's action does not frustrate the other or prevent the other from getting the benefits of that contract.
In insurance, this covenant is sometimes captured under the heading <em>Uberrima fides</em>. This is a Latin phrase meaning <em>"Utmost Good Faith".</em>
In insurance, this covenant is legally binding on all parties to ensure they each reveal every information that is material to the acceptance or rejection of the risk (on the part of the Insurer) whilst on the part of the Insured the insurer is required to be explicit regarding the terms of the policy as well as the calculations by which the premium is arrived at.
For example, if an Insurance company is looking at covering someone under it's Life Insurance Policy, the person taking out the contract must disclose whether or not the Insured has any latent health issues which might shorten their lifespan. If there is such a condition, the Insurance company may still take on the risk albeit at a relatively higher rate than a client without such medical conditions.
An Insurance Company may breach this covenant if they delay or refuse to reasonable settle claims due to the Insured. It may also arise if the Insurance company by some technical manipulation intentionally under settles an Insurance claim.
If for instance, a Comprehensive Insurance Policy files a valid claim, the Insurer may be liable for negligence and or intentional wrongdoing.
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