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AURORKA [14]
3 years ago
8

Problem 16-15 MM and Taxes [LO2] Meyer & Co. expects its EBIT to be $111,000 every year forever. The firm can borrow at 8 pe

rcent. The company currently has no debt, and its cost of equity is 12 percent and the tax rate is 22 percent. The company borrows $165,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Business
1 answer:
Aleks04 [339]3 years ago
4 0

Answer:

a) 12.87%

b) 11.03%

Explanation:

EBIT with no debt = $111,000

net income = $111,000 x (1 - 22%) = $86,580

total value of the firm with no debt = $86,580 / 12% = $721,500

value of the firm after debt is taken = $721,500 + ($165,000 x 22%) = $757,800

debt to equity ratio after debt is taken = $165,000 / ($757,800 - $165,000) = 27.834%

new cost of equity (Re) = 12% + [(12% - 8%) x 27.834% x (1 - 22%)] = 12.87%

WACC = (0.72166 x 12.87%) + (0.27834 x 8% x 0.78) = 9.288% + 1.737% = 11.025$ = 11.03%

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The main purpose as well as the cause of the failure of performance appraisal process is as described below-

Explanation:

Appraisal refers to the process (mostly formal) to evaluate the productivity of the manpower of an organisation. It serves for administrative as well as developmental purpose.

Performance appraisal serves three important purpose-

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However, appraisals occasionally fail in their motive due to following reasons-

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5 0
3 years ago
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Answer:

The above statement is<u> true</u>.

Explanation:

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It protect your children from become homeless after your death. It also protect your property from being contested. A will is only valid if it is having number of years after the persons death.

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8 0
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Answer:

it does not measure quality-of-life factors ; it does not account for distribution of wealth ; it fails to measure non monetary (home production) activities

Explanation:

Real GDP is the total value of goods & services produced in an economy, during a period of time. But it is not correct measure of welfare level.

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4 0
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Answer:

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False

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So the given statement is false

6 0
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