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Elodia [21]
3 years ago
14

The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of .9. The Treasury bill rate is 4%, and th

e market risk premium is estimated at 8%. BCCI’s capital structure is 30% debt, paying an interest rate of 5%, and 70% equity. The debt sells at par. Buildwell pays tax at 40%.
a. What is BCCI’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Cost of equity capital %
b. What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
WACC %
Business
1 answer:
UkoKoshka [18]3 years ago
4 0

Answer:

Cost of equity is 11.2%

WACC is 8.74%

Explanation:

The formula for cost of equity is given below:

Cost of equity=risk free rate+(Beta *risk premium)

risk free rate is the treasury bill rate of 4%

Beta is 0.9

market risk premium is 8%

cost of equity=4%+(0.9*8%)=11.2%

WACC=Ke*E/V+Kd*D/V*(1-t)

Ke is the cost of equity of 11.2%

Kd is the cost of debt of 5%

t is the tax rate of 40% or 0.4

E is the equity weighting of 70% or 0.7

D is the debt weighting of 30% or 0.3

V is the E+D=0.7+0.3=1

WACC=11.20% *0.7/1+(5%*0.3/1*(1-0.4)

WACC=7.84% +0.90% =8.74%

       

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Bummerland finds itself in a recession caused, as assumed in class, a sticky nominal (money) wage (W) which is too high to clear
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What were the impacts of the fur trade on society in terms of economics, culture, technology, nature, and the government? Did Ro
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Rockefeller never act unethically by the standards of his day or today´s.

There is nocontradiction between his personal and business ethics.

Explanation:

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6 0
3 years ago
On January 1, 2013, Craig Company paid the premium on a four-year insurance policy in the amount of $12,000. At that time, the f
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Policy duration = 4 years

Policy amount = $12,000

Date on which premium is paid = January 1, 2013

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Now,

The time passed between January 1, 2013 to December 31, 2015 = 3 years

Therefore,

Amount to be recognized as insurance exp. on December 31, 2015

= \$12,000\times\frac{\textup{Time elapsed}}{\textup{Total policy duration}}

= \$12,000\times\frac{\textup{3}}{\textup{4}}

= $9,000

Thus,

The balance in the prepaid insurance account = $12,000 - $9,000 = $3,000

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3 0
3 years ago
Accounts receivable turnover and days’ sales in receivables For two recent years, Robinhood Company reported the following: 20Y9
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Answer:

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Explanation:

The computation of accounts receivable for both years is shown below:-

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Sales                               $7,906,000        $6,726,000

Accounts receivable

Beginning balance          $600,000            $540,000

Ending balance                $580,000             $600,000

Accounts receivable       $590,000             $570,000

Working note:-

Average Accounts receivable for 2019 = ($600,000 + $580,000) ÷ 2

= $590,000

Average Accounts receivable for 2018 =  ($540,000 + $600,000) ÷ 2

= $570,000

7 0
3 years ago
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