Answer:
The WACC before bond issuance is 3.9% and the WACC after bond issuance is 3.71%
Explanation:
In order to calculate the WACC before bond issuance
, we would have to calculate first the cost of equity using capital asset pricing model
.
So Using CAPM we have Rf + Beta x Market risk premium
=
0.5% + 0.85 * 4%
= 3.9%
. cost of equity
Therefore WACC before bond issuance = (Cost of equity x weight of equity + cost of debt (1-tax) x weight of debt)
= 3.9%
. WACC before bond issuance will be equal to cost of equity in this case as there is no debt issue.
In order to calculate the WACC after bond issuance we make the following calculation:
WACC after bond issuance = (Cost of equity x weight of equity + cost of debt (1-tax) x weight of debt)
= (3.9% x 0.9) + (2% x 0.1)
= 3.51% + 0.2%
= 3.71%
Answer:
$93,750
Explanation:
Contribution margin=15-(5+3+3)=4
Fixed Costs=$60,000+$40,000=$100,000
Break even point in units=$100,000/4=25,000
Break even point in $=25,000/(4/15)=$93,750
The quantity supplied at this level of price is less than the quantity demanded and therefore the market is in shortage situation.
<u>Explanation:</u>
If the current price of the market is above the price P0, then the level of the quantity supplied of the good is less than the level of quantity demanded of that good at this level. With the less quantity supplied, there will be a situation of shortage of the quantity of goods in the market.
