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sleet_krkn [62]
3 years ago
14

Orange Inc., an orange juice producer with a current debt-to-equity ratio of 2, is considering expanding its operations to produ

ce toothpaste. Unsurprisingly, the toothpaste industry faces a different set of risks than the orange juice industry. However, the executives at Orange Inc. observe that Paste Inc., a toothpaste company, has a cost of equity of 12%, a cost of debt of 6%, and a debt-to-value ratio of 40%. Orange Inc. plans to finance its expansion into toothpaste production with 50% debt and 50% equity. The cost of debt for Orange Inc. is also 6%, and the corporate tax rate is 25%. Solve for the discount rate that Orange Inc. should use when evaluating whether to go forward with the expansion Note: Orange Inc. does not want to use the Adjusted Present Value method.
Appropriate Rate = 12.08%
Appropriate Rate = 9.60%
Appropriate Rate = 13.20%
Appropriate Rate = 8.85%
Assume Last Inc. has no cash on hand, but wants to take on a project that adds $30 million in market value to the firm's assets, and has an NPV of $20 million. The project requires an initial investment of $10 million. LastQ Inc. wants to maintain its 50% Debt to Value Ratio.
How much debt should LastQ issue, and how much should they pay stockholders in dividends?
Issue $30 million in debt, pay $5 million to shareholders
Issue $15 million in debt, pay $5 million to shareholders Issue $10 million in debt, pay $20 million to shareholders
Issue $20 million in debt, pay $8 million to shareholders
Business
1 answer:
Ymorist [56]3 years ago
7 0

Answer:

Appropriate Rate = 8.85%

Explanation:

Given the following :

Paste Inc,

cost of debt (Kd) = 6% = 0.06

Cost of Equity Ke = 12% = 0.12

Weight of debt ; Wd = 40%

Weight of equity; We = 1 - 40% = 0.6

Pretax discount :

We * Ke + Wd * Kd

0.6 * 0.12 + 0.4 * 0.06 = 0.096

For orange :

Weight of debt (Wd) = 50% = 0.5

Weight of Equity (We) = 50% = 0.5

Cost of debt (Kd) = 6% = 0.06

Tax rate (r) = 25% = 0.25

Cost of Equity (Ke) :

Pretax discount + 1(pretax discount - cost of debt)

0.096 + 1(0.096 - 0.06)

0.096 + 0.096 - 0.06 = 0.132

WACC: for orange Inc.

We * Ke + Wd * Kd * ( 1 - tax rate)

0.5 * 0.132 + 0.5 * 0.06 * (1 - 0.25)

0.5 * 0.132 + 0.5 * 0.06 * 0.75

0.066 + 0.0225

= 0.0885

= 0.0885 * 100%

= 8.85%

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Fiesta28 [93]

Answer:

Explanation:

a. Total cost=4800+30*2*x=4800+60x

The cost for the conference room, instructor compensation, lab assistants, and promotion is $4800

Computer rental - $30 per day

Length of seminar - 2 days

X - number of  students

b. total profit = revenue-costs incurred = 300x-(4800+60x)=240x-4800

Projected fee - $300 per student

c. If 30 students enrolled

profit=240*30-4800=7200-4800=2400

d. 240x-4800=0

x=4800/240=20

break-even point is 20, it is point at with profit will equal zero

5 0
3 years ago
Current Attempt in Progress Swifty Corporation produces three versions of baseball bats: wood, aluminum, and hard rubber. A cond
jarptica [38.1K]

Answer:

None of the fixed costs are avoidable. Therefore the company now loses all the fixed costs and the positive contribution margin.

Explanation:

Giving the following information:

Wood Aluminum Hard Rubber

Total Sales $65000

Variable expenses (58000)

Contribution margin 7000

Fixed expenses  (22000)

Net income (loss) (15000)

Effect on income= -22,000 - 7,000= -29,000

None of the fixed costs are avoidable. Therefore the company now loses all the fixed costs and the positive contribution margin.

5 0
3 years ago
John Ciro, the CEO of Ciro Products, a small manufacturer, told his employees that he is part of a group that was going abroad a
8_murik_8 [283]

Complete Question:

John Ciro, the CEO of Ciro Products, a small manufacturer, told his employees that he is part of a group that was going abroad along with representatives of the U.S. Department of Commerce and other U.S. businesspeople to meet with qualified agents, distributors, and customers. Ciro was most likely talking about the?

a. "best prospects" listing.

b. SCORE program.

c. export-import program.

d. "comparison shopping service."

e. matchmaker program.

Answer:

e. matchmaker program.

Explanation:

The matchmaker program is a marketing strategy that focuses on intelligently matching the right exhibitors with optimum high-volume importers or buyers, and establishes business oriented meeting at a specific venue, so as to enable business introductions and create lucrative business transactions among the participants on a face-to-face basis.

Hence, John Ciro being part of a group that was going abroad along with representatives of the U.S. Department of Commerce and other U.S. business people to meet with qualified agents, distributors, and customers suggests a matchmaker program.

3 0
3 years ago
Suppose avon and nova stocks have volatilities of 50% and 25%, respectively, and they are perfectly negatively correlated. what
kirill115 [55]
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4 0
3 years ago
Marigold Manufacturing uses a flexible budget. It has the following budgeted manufacturing costs for 25800 pairs of shoes: Fixed
olasank [31]

Answer:

$231,200

Explanation:

The computation of the total budgeted manufacturing cost is shown below:

= Fixed Manufacturing Costs + Variable Manufacturing Costs per pair of shoes × number of shows made this month

= $12,300 + $11 × 19,900 shoes

= $12,300 + $218,900

= $231,200

We simply added the Fixed Manufacturing Costs and variable manufacturing cost so that the exact value might arrive.

3 0
3 years ago
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