1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
mojhsa [17]
3 years ago
6

Desires to maintain a capital structure of 80% equity and 20% debt. They currently have an effective tax rate of 30%. The compan

y’s cost of equity capital is 12%. To obtain their debt financing, they issue bonds with an interest rate of 10%. What is the company’s weighted average cost of capital?
a. 8%
b. 10.4%
c. 11%
d. 11.6%
Business
2 answers:
Dmitry [639]3 years ago
8 0

Answer:

The correct is option C,11%

Explanation:

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

Ke is the cost of equity at 12%

E/V=Equity/Equity+Debt

Equity is 80% that is 0.8

Debt is 20%  that is 0.2

V=equity+debt=0.8+0.2=1

Kd is the cost of debt at 10%

t is the tax rate at 30% that is 0.3

WACC=12%*0.8/1+10%*0.2/1*(1-0.3)

          =12%*0.8/1+10%*0.2/1*0.7

          =12%*0.8+10%*0.2*0.7

           =12%*0.8+10%*0.14

           =9.6%+1.4%

           =11%

The weighted average cost of capital for the company is 11%

boyakko [2]3 years ago
4 0

Answer:

c. 11%

Explanation:

WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs. weightage can be calculated by using the market value of the equity and debt.

The formula for WACC is

Weighted average cost of capital = (Cost of equity x Weightage of equity) + (Cost of debt (1 - tax ) x Weightage of debt)

Weighted average cost of capital = (12% x 80%) + (10% ( 1-0.3 ) x 20% )

Weighted average cost of capital = 9.6% + 1.4% = 11%

You might be interested in
What's two examples of a direct competition?​
densk [106]

Answer and Explanation:

Direct competition is a type of competition where two or more businesses offers the same kind of product and compete in the similar market.

The examples like dominos versus pizza hut in terms of food, HP versus Dell in terms of laptop

So in this examples they sell the same kind of products and compete each other

5 0
3 years ago
A majority of employees surveyed believe that a top manager who violated ethics policies at their company would be
andrezito [222]
They would be rebuffed and considered responsible. It lays out measures of moral conduct and expert lead workers are required to keep up interior and amid connections with customers and accomplices. An infringement of the code implies you have acted in a way that conflicts with the code. Doing as such prompts outcomes, as laid out in the archive.
4 0
4 years ago
At Lequals86​, Kequals90​, the marginal product of labor is 8 and the marginal product of capital is 2. What is the marginal rat
Sidana [21]

Answer:

0.25

Explanation:

The marginal rate of technical substitution (MRTS) can be described as the rate of a reduction is one factor to maintain the same production level when another factor is increased.

Given that labor is measured on the horizontal axis, the MRST of K for L can be calculated as follows:

MRST_{KL} = \frac{MP_{K} }{MP_{L} }

Where;

MPK =  Marginal product of capital = 2

MPL = Marginal product of labor = 8

Substituting the values into the equation, we have:

MRST_{KL} = \frac{2}{8} =\frac{1}{4} = 0.25

This implies that 0.25 of capital must be given up to have one unit of labor.

3 0
3 years ago
Explain how each of the following will affect the net public​ debt, other things being equal. a. ​Previously, the government ope
gayaneshka [121]

Answer:

A. - The net public debt decreases

The net public debt decreases because the government has obtained more funds in tax revenue. For this reason, the government will likely run a budget surplus.

B. - The net public debt increases

The government was already running a budget deficit (albeit a small one). With the effects of the hurricane, the government will have to spend more to help the people affected, and will likely have to borrow even more, increasing its deficit.

C. - The net public debt remains unchanged

There was a transfer of funds from one government agency to the other, and the net effect of such transfer is likely to be very small to make any significant change in the net public debt. The net public debt remains unchanged.

4 0
3 years ago
What are the two types of discretionary fiscal policy
jekas [21]
Expansionary fiscal policy and contractionary fiscal policy
6 0
3 years ago
Read 2 more answers
Other questions:
  • The comparative balance sheet of Merrick Equipment Co. for December 31, 20Y9 and 20Y8, is as follows:
    9·1 answer
  • What bia metric can be used to express the longest time a business function can be unavailable without causing irreparable harm
    5·1 answer
  • Which statement best describes the economic relationship between
    15·1 answer
  • Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a sh
    5·1 answer
  • On November 15, Meier Company received $3,000 cash from a customer for services that were performed on November 1. According to
    10·1 answer
  • To be valid and enforceable, insurance contracts must meet which general legal requirements?
    12·1 answer
  • On December 31, 2018, the unadjusted balance in Prepaid Insurance was $2580. This was the amount paid in the middle of the year
    14·1 answer
  • The first two closing entries to the Income Summary account indicate a debit of $57,750 and a credit of $69,700. The third closi
    13·1 answer
  • On January 2, 2018, Ava Co. issued at face value $119,600 of 7% bonds convertible in total into 13,686 shares of Ava's common st
    5·1 answer
  • There are hundreds of highly targeted, upstart sites on the Internet along with magazines created by users. Initially, the main
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!