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DaniilM [7]
3 years ago
8

A firm has determined its cost of each source of capital and its optimal capital structure which is comprised of the following s

ources;
Long-term debt = 45%, after-tax cost = 7%
Preferred stock = 15%, after-tax cost = 10%
Common stock equity = 40%, after-tax cost = 14%
The weighted average cost of capital for this firm is;
Business
1 answer:
barxatty [35]3 years ago
5 0

Answer:

10.25%

Explanation:

Data provided in the question:

Long-term debt = 45%, after-tax cost = 7%

Preferred stock = 15%, after-tax cost = 10%

Common stock equity = 40%, after-tax cost = 14%

Now,

The  weighted average cost of capital for this firm will be calculated as:

= Long term debt × after-tax cost + Preferred stock × after-tax cost + Common stock equity × after-tax cost

or

= 0.45 × 0.07 + 0.15 × 0.10 + 0.40 × 0.14

or

= 0.0315 + 0.015 + 0.056

= 0.1025

or

= 0.1025 × 100%

= 10.25%

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Jaronda founded Diamond Communications Inc. in 1993. Ten years later, the company went public. Despite Jaronda's death in 2005,
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Answer: C. separation of legal ownership and management control

Explanation: Public traded company can go on with their operation undisturbed when the founder dies, because there is separation of ownership from management of the company.

Public traded companies usually have a board which management report to, the board is the highest decision making body in the company.

7 0
3 years ago
Jimmy Company’s cash balance at the end of the month was $8,500. After comparing the company’s records with the monthly bank sta
Elodia [21]

Answer:

The answer is C) $7,970.

Explanation:

We have 04 reconciling items as below:

- Outstanding checks $800: this amount was already recorded in the Cash account of the company once the check was written; thus, the Cash ending balance has already reflected this amount.

- Deposits in transit $700: this amount was already recorded in the Cash or Cash-equivalent account of the company once the deposit was made; thus, the Cash ending balance has already reflected this amount.

- Bank service charge $30: fees paid to banking activities and are deducted without informing to the company. Thus, this deduction in cash is not reflected in the Cash account.

-  NSF check $500: this was recorded as the increase in Cash account by the company once the check was written by the person/entity to the company. However, the writer's account balance was not sufficient to honor this check amount to the company; thus Cash Account at the end of the period should reduced by $500. Instead, this $500 may be recorded in Account Receivable account.

Thus, the adjusted cash balance = 8,500 - 30 - 500 = $7,970.

7 0
3 years ago
On its December 31, 20X5 balance sheet, Shin Co. has income tax payable of $13,000 and a current deferred tax asset of $20,000,
mariarad [96]

Answer:

$10,000

Explanation:

To calculate income tax expense we must add income liability for the year, minus the changes in deferred tax accounts and add the change in value for deferred tax assets.

income tax expense = $13,000 - ($20,000 - $15,000) + ($20,000 x 10%) = $13,000 - $5,000 + $2,000 = $10,000

3 0
3 years ago
Since its formation, Roof Corporation has incurred the following net Section 1231 gains and losses. Year 1$(12,000)Net Section 1
vekshin1

Answer:

a. $0 will be reported as capital gain, while $7,500 will be reported as ordinary gain.

b. $1,000 will be reported as capital gain, while $8,000 will be reported as ordinary gain.

Explanation:

Note: This question is not complete as part 'a' of the requirement is omitted. The complete question with the part 'a' of the requirement is therefore provided before answering the question as follows:

Since its formation, Roof Corporation has incurred the following net Section 1231 gains and losses.

Year 1  $ (12,000)    Net Section 1231 loss

Year 2      10,500      Net Section 1231 gain

Year 3    (14,000)     Net Section 1231 loss

a. In year 4, Roof sold one asset and recognized a $7,500 net Section 1231 gain. How much of this gain is treated as capital, and how much is ordinary?

b. In year 5, Roof sold one asset and recognized a $9,000 net Section 1231 gain. How much of this gain is treated as capital, and how much is ordinary?

Explanation of the answer is now provided as follows:

When section 1231 losses exceed section 1231 profits in the prior five years, the excess loss (unapplied loss) is applied against the current year's section 1231 gain.

The amount that is reported as ordinary income is the amount of the loss that is applied against the current year's section 1231 gain.

Long-term capital gain is the excess of the current year's section 1231 gain over the the recaptured section 1231 loss from the prior five years.

You have to start with the earliest year to apply section 1231 losses from the previous five years to the current year's section 1231 gain.

Therefore, we have:

a. In year 4, Roof sold one asset and recognized a $7,500 net Section 1231 gain. How much of this gain is treated as capital, and how much is ordinary?

As a result of the loss from the previous year that is applied to the extent of $7,500, the whole of the $7,500 net Section 1231 gain will be recorded as ordinary gain.

Therefore, $0 will be reported as capital gain, while $7,500 will be reported as ordinary gain.

b. In year 5, Roof sold one asset and recognized a $9,000 net Section 1231 gain. How much of this gain is treated as capital, and how much is ordinary?

Unapplied losses in previous years can be calculated as follows:

<u>Details                                                       Amount ($)   </u>

Net Section 1231 loss in Year 3                  (14,000)    

Net Section 1231 gain in Year 4                   7,500

Net Section 1231 loss in Year 1                  (12,000)

Net Section 1231 gain in Year 2               <u>   10,500  </u>

Unapplied losses in previous years    <u>    (8,000)  </u>

Because there are unapplied losses of $8,000 from previous years, $8,000 will be reported as ordinary gain.

Therefore, the amount to be reported as capital gain can be calculated as follows:

Amount to be reported as capital gain = Gain in Year 5 – Amount to be reported as ordinary gain = $9,000 - $8,000 = $1,000

Therefore, $1,000 will be reported as capital gain, while $8,000 will be reported as ordinary gain.

8 0
3 years ago
Charles Berkle is the manager of Nogain Manufacturing and is interested in doing a cost of quality analysis. The following cost
Georgia [21]

Explanation:

a. The classification is shown below:

Prevention cost: This cost incurred so that the faults, or defects could be minimized as compare to before. It includes the machine maintenance expense i.e $3,000

Appraisal cost: This cost incurred specially to meet the quality of the customer expectations. It is a quality control cost. It includes the inspection cost of $15,000

Internal failure: This cost is occurred before delivery the product from the factory. It includes  Scrap and rework of $8,600 and Machine breakdown cost of $4,000  

External failure: This cost is occurred after delivery the product. It includes the warranty expense of $21,000, product return due to defects of $6,000 and Estimated lost sales due to poor quality of $5,000

b. Now the percentage is

= (Prevention and appraisal cost) ÷ (Sales revenue) × 100

= ($3,000 + $15,000) ÷ ($250,000) × 100

= 7.2%

c. The percentage is

= (Internal and external failures) ÷ (Sales revenue) × 100

= ($8,600 + $4,000 + $21,000 + $6,000 + $5,000) ÷ ($250,000) × 100

= 17.84%

Below is the attachment for cost of quality report

7 0
3 years ago
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