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eduard
3 years ago
7

A few years ago the firm issued $4,000,000 debt with a coupon rate of 4%; currently that debt is trading with a yield to maturit

y of 5.04% and a value of $3,500,000. The firm has 1,000,000 common shares outstanding at a value of $6/share. You look up the asset beta for firms in the same industry (SIC) code and determine that value is 1.15. The firm plans on keeping it's D/E ratio constant (at the current level) going forward and the tax rate is expected to be 35%. The beta of the firms debt is estimated as 0.30, the risk free rate is 3% and the market return is 9.8%.
Required:
Find the WACC for above firm.
Business
1 answer:
BigorU [14]3 years ago
4 0

Answer:

WACC = 10.22%

Explanation:

market value of debt = $3,500,00

Rd = 5.04%

current market value of equity = 1,000,000 x $6 = $6,000,000

Re = 3% + (1.15 x 9.8%) = 14.27%

weight of debt = $3,500 / $9,500 = 36.84%

weight of equity = $6,000 / $9,500 = 63.16%

WACC = (63.16% x 14.27%) + (36.84% x 5.04% x 65%) = 9.01% + 1.21% = 10.22%

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Explanation:

The computation is shown below:

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b. The cost of goods available for sale is

= Beginning inventory + purchase

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c. The cost of goods sold is

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3 years ago
When Nike purchases it's raw materials it wants to ensure they meet a specific quality management standard worldwide. This will
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Answer:

their

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Nike should purchase it's raw materials from organizations that meet ______their_______________ standards.

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What is one example of service that a bank or credit offers
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3 years ago
The perfectly competitive price and output level occur where
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Answer:

It occur where MR = MC

Explanation:

Perfectly competitive organization or firm is the one who is price taker, which states that they must accept the price at which it sells the goods to consumer.

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It is stated as MR = MC.

7 0
2 years ago
A university officer wants to know the proportion of registered students that spend more than 20 minutes to get to school. He se
vlada-n [284]

Answer:

1) We need a random sample. For this case we assume that the sample selected was obtained using the simple random sampling method.

2) We need to satisfy the following inequalities:

n\hat p =25*0.52= 13 \geq 10

n(1-\hat p) = 25*(1-0.52) =12 \geq 10

So then we satisfy this condition

3) 10% condition. For this case we assume that the random sample selected n represent less than 10% of the population size N . And for this case we can assume this condition.

So then since all the conditions are satisfied we can conclude that we can apply the normal approximation given by:

p \sim N (\hat p, \sqrt{\frac{\hat p (1-\hat p)}{n}})

So then the answer for this case would be:

a. Yes.

Explanation:

For this case we assume that the question is: If in the experiment described we can use the normal approximation for the proportion of interest.

For this case we have a sample of n =25

And we are interested in the proportion of registered students that spend more than 20 minutes to get to school.

X = 13 represent the number of students in the sample selected that have a time more than 20 min.

And then the estimated proportion of interest would be:

\hat p = \frac{X}{n}= \frac{13}{25}= 0.52

And we want to check if we can use the normal approximation given by:

p \sim N (\hat p, \sqrt{\frac{\hat p (1-\hat p)}{n}})

So in order to do this approximation we need to satisfy some conditions listed below:

1) We need a random sample. For this case we assume that the sample selected was obtained using the simple random sampling method.

2) We need to satisfy the following inequalities:

n\hat p =25*0.52= 13 \geq 10

n(1-\hat p) = 25*(1-0.52) =12 \geq 10

So then we satisfy this condition:

3) 10% condition. For this case we assume that the random sample selected n represent less than 10% of the population size N . And for this case we can assume this condition.

So then since all the conditions are satisfied we can conclude that we can apply the normal approximation given by:

p \sim N (\hat p, \sqrt{\frac{\hat p (1-\hat p)}{n}})

So then the answer for this case would be:

a. Yes.

3 0
2 years ago
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