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fiasKO [112]
3 years ago
15

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 70 percent. The firm's cost of equity

is 13 percent and it has a tax rate of 30 percent. If the firm's WACC is 11 percent, what is the firm's before-tax cost of debt?
a) 7.17 percent
b) 9.05 percent
c) 6.38 percent
d) 5.36 percent
Business
1 answer:
aliina [53]3 years ago
7 0

Answer:

b) 9.05 percent

Explanation:

The computation of the firm before tax cost of debt is shown below:

The Weight of debt is

= 100 - 70

=30%

Now  

WACC = Respective cost × Respective weight

11 = (0.7 × 13) + (0.3 × Cost of debt)

11 = 9.1 + (0.3 × Cost of debt)

Cost of debt = (11 - 9.1) ÷ 0.3

= 6.333%(Approx)

Now

Pre-tax Cost of debt is

= Cost of debt ÷ (1 - tax rate)

= 6.333 ÷ (1 - 0.3)

= 9.05%

hence, the correct option is b.

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Explanation:

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Though both exhibit almost the same characters , it totally depends upon the person which they prefer over the two products.

5 0
4 years ago
Initial Outlay $ -8,000,000.00 Inflow year 1 1,020,000.00 Inflow year 2 1,850,000.00 Inflow year 3 1,960,000.00 Inflow year 4 2,
Reika [66]

Answer:

The answer is 6.151%

Explanation:

The weighted average cost of capital (WACC) of the project is also the internal rate of return (IRR). The IRR formula is calculated by equating the sum of the present value of future cash flow less the initial investment to zero.

5 0
4 years ago
A ________ partner has responsibility or liability for losses beyond their investment, but a ______- partner only has liability
inna [77]

Answer:

1. a GENERAL partner

2. a LIMITED partner

Explanation:

A GENERAL partner has responsibility or liability for losses beyond their investment. They are bound up to the extent of their personal assets incase the partnership is insolvent. They are also responsible in the management and decision-making process in the operation of the partnership. A LIMITED partner on the other hand is only liable in the partnership’s losses up to the extent of his investment in case of partnership’s insolvency. But a limited partner should NOT participate in the management and decision-making process of the operation in the partnership for him to be not liable up to the extent of his personal asset. A limited partner should also be recorded in the articles of the partnership as “LIMITED PARTNER”, otherwise he is liable as general partner.

8 0
3 years ago
Competition between banks and nonbanks, such as insurance companies and pension funds, has?
Troyanec [42]

Competition between banks and nonbanks, such as insurance companies and pension funds, has not changed in 50 years, since the creation of the Federal.

A retirement fund also called a retirement fund in some countries, is a plan, fund, or scheme that provides income after retirement. Pension funds typically hold large amounts of investment capital and are major investors in public and private companies. These are especially important for stock markets dominated by large institutional investors. Together, the top 300 pension funds have approximately $6 trillion in assets.

In 2012, PricewaterhouseCoopers estimated that pension funds held more than $33.9 trillion in assets worldwide (expected to exceed $56 trillion by 2020), with mutual funds, insurance companies, and foreign exchange reserves It is the largest category of institutional investors, surpassing gold and sovereign wealth. funds, hedge funds, or private equity; With $2.66 trillion in assets under management, the Federal Endowment Trust Fund is the world's largest public pension fund.

Learn more about Pension Funds here : brainly.com/question/11464480

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6 0
2 years ago
A group of 10 pineapple pickers can pick 240 pineapples in an hour. When one more pineapple picker is added to the group, they c
photoshop1234 [79]

Answer:

30 pineapples

Explanation:

The computation of the marginal product of the 11th pineapple picker is shown below:

= 11 pineapple - 10 pineapple

= 270 pineapples - 240 pineapples

= 30 pineapples

Hence, the marginal product of the 11th pineapple picker is 30 pineapples

We simply applied the above formula so that the correct value could come

4 0
3 years ago
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