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wariber [46]
2 years ago
12

The company cost of capital for a firm with a 60/30/10 debt/common/preferred split, 8% cost of debt, 15% cost of equity, preferr

ed stock sells for $50 today, and will pay a $6 dividend in year 1. Assume a 35% tax rate, solve for WACC.
a. 7.02%
b. 8.82%
c. 10.50%
d. 13.62%
Business
1 answer:
sveticcg [70]2 years ago
6 0

Answer:

b. 8.82%

Explanation:

WACC = Cost of equity x Weight of equity + Cost of Preferred Stock x Weight of Preferred Stock + Cost of Debt x Weight of Debt

Cost of Preferred Stock calculation :

Cost of Preferred Stock = Expected dividend / Market Price x 100

                                        = $6 / $50 x 100

                                        = 12 %

After tax cost of debt calculation :

After tax cost of debt = Interest x (1 - tax rate)

                                    = 8 % x (1 - 0.35)

                                    = 5.20 %

therefore,

WACC = 15% x 30 % + 12 % x 10 %+ 5.20 % x 60 %

           = 8.82 %

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Answer and Explanation:

The Journal entries are shown below:-

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(Being purchase of inventory is recorded)

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(Being amount borrowed from bank and issued notes is recorded)

B. a. Interest expenses Dr, $1,000 ($50,000 × 8% × 3 ÷ 12)

            To Interest payable $1,000

(Being interest expenses is recorded)

b. Interest expenses Dr, $1,000 ($4,000 × 3 ÷ 12)

                 To Discount on notes payable $1,000

(Being interest expenses is recorded)

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Answer:

Total producer surplus= $30

Explanation:

Producer surplus is the difference between the price a seller is willing to sell and the market price or actual price at which the item is bought. The producer surplus is the additional benefit the seller gets from a sale.

Consumer surplus= Market price - Price seller is willing to sell for

Marco is willing to sell at $15 hour

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