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4 years ago

For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)?

Business

1 answer:

Basile [38]4 years ago

4 0

Answer:

1. Debt

2. 8.75%

3. 8.85%

4. 6.195%

Explanation:

For computing the tax adjustment, the Debt capital component is taken

The normal formula to compute WACC is shown below:

= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of preferred stock) × (cost of preferred stock) + (Weightage of common stock) × (cost of common stock)

The computation of the pre-tax cost of debt and after-tax cost of debt is shown below:

1. The after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 12.50% × ( 1 - 0.30)

= 8.75%

The NPER represents the time period.

Given that,

Present value = $1,382.73

Assuming figure - Future value or Face value = $1,000

PMT = 1,000 × 13% = $130

NPER = 20 years

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after solving this,

3. The pretax cost of debt is 8.85%

4. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 8.85% × ( 1 - 0.30)

= 6.195%

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2 years ago

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Answer:

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Explanation:

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3 years ago

Part of implementing Quality Windows Limited new enterprise resource planning (ERP) software is ensuring all workstations and se

Setler [38]

Answer:

A)i) web browser software :

ii) web server software :

B) i) Web browser software: Auto-download updates and Tracking functionality

ii) web server software : unauthorized access and unsecure connection from web browse

C) i) Legal and regulatory controls

ii) Access controls

D) i) Validation process -

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iii) Develop:

iv)Testing: Test what has been developed

v) Review/Management :

Explanation:

A ) Functions that the software application should provide

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ii) web server software : This function means that the software should be able to store, process and deliver web pages to web browser applications’.

B) Functions that this software application should prohibit

i) Web browser software: Auto-download updates and Tracking functionality

ii) web server software : unauthorized access and unsecure connection from web browser

C) Controls that are necessary to ensure application software operates as intended

i) Legal and regulatory controls such as privacy laws, and copyright policies will help the software operate smoothly

ii) Access controls such as user authentication when a user is trying to login is very vital for the security of the user

D Steps necessary to validate that the software operates as intended

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ii) Define Requirements- defining the functions of the software and what the system can't do as well

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3 years ago

Elston Company issued $500,000 of eight percent, 20-year bonds at 106 on January 1, 2010. Interest is payable semiannually on Ju

galben [10]

Answer:

Prepare the journal entry to record the bond retirement on January 1, 2016.

total bond premium = $500,000 x 1.06 = $530,000

carrying bond value = $530,000 - $5,000 = $525,000

gain/loss = carrying value - cash paid = $525,000 - $515,000 = $10,000

Keep in mind the carrying value – cash paid to retire bonds = gain or loss on bond retirement

Dr Bonds payable 500,000

Dr Premium on bonds payable 25,000

Cr Cash 515,000

Cr Gain on retirement of bonds 10,000

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Dr Accounts payable 5,000

Cr Notes payable 5,000

May 15: Borrowed $40,000 from Lincoln Bank, signing a 60-day note at nine percent.

Dr Cash 40,000

Cr Notes payable 40,000

Jun 7: Paid Bennett Company the principal and interest due on the April 8 note payable.

Dr Notes payable 5,000

Dr Interest expense 50

Cr Cash 5,050

Jul. 6: Purchased $12,000 of merchandise from Bolton Company; signed a 90-day note with ten percent interest.

Dr Merchandise inventory 12,000

Cr Notes payable 12,000

Jul. 14: Paid the May 15 note due Lincoln Bank.

Dr Notes payable 40,000

Dr Interest expense 600

Cr Cash 40,600

Oct.2: Borrowed $30,000 from Lincoln Bank, signing a 120-day note at 12 percent.

Dr Cash 30,000

Cr Notes payable 30,000

December 31, adjusting entry

Dr Interest expense 600

Cr Interest payable 600

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No journal entry required

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3 years ago

S&L Financial buys and sells securities expecting to earn profits on short-term differences in price. On December 27, 2018,

baherus [9]

Answer:

2018-unrealized loss of $2,000

2019 -gain on sale of investments of $8,500

Explanation:

As at December 31st 2018,the amount S& L would include in its pretax income as a result of the bond investment is the difference between the purchase of the bond of $875,000 and the fair value of the investment at year end of $873,000,effectively that gives an unrealized loss of $2,000($873,000-$875,000)

However, in the year 2019 ,the amount to be included in pretax amount in respect of the bond is the difference between the fair value in 2018 and the proceeds from the sale of investment of $881,500 i.e a gain of $8,500($881,500-$873,000)

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3 years ago