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Phantasy [73]
3 years ago
14

Alabaster Incorporated wants to be levered at a debt to value ratio of .6 . The cost of debt is 9%. the tax rate is 35% and the

cost of equity for an all equity firm is 12%. What will be Alabaster's cost of equity? ( Please show all work and show the answer as a percentage)
Business
1 answer:
Aleks [24]3 years ago
4 0

Answer:

14.925%

Explanation:

Cost of equity = Unlevered Cost of Equity + (Unlevered Cost of Equity - Cost of debt)*Debt to value ratio / (1-debt to value ratio)*(1-Tax rate)

Cost of equity = 12% + (12%-9%)*0.6/(1 - 0.6)*(1 - 35%)

Cost of equity = 0.12 + 0.018/0.4*0.65

Cost of equity = 0.12 + 0.02925

Cost of equity = 0.14925

Cost of equity = 14.925%

So, Alabaster's cost of equity will be 14.925%.

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Strike441 [17]

Answer:

1 they take a lot of time

2 when you come back, you don't want to do the homework

3 you are tired

5 0
3 years ago
Joe runs a restaurant. He pays his employees​ $200,000 per year. His ingredients cost him​ $50,000 per year. Prior to running hi
Elanso [62]

Answer:

Cost incurred while running a restaurant:

Salary paid = $200,000 per year

Ingredients cost =  $50,000 per year

Before running this restaurant, he was earning $150000 per year.

Here, we are using a concept called opportunity cost.

Opportunity cost refers to the benefit of a commodity that is forgone to produce one extra unit of some other commodity.

It is also refers to the value of next best alternative that is given up by choosing some other alternative.

In this question, opportunity cost of running a restaurant is the income that is earned when he was a lawyer, i.e, $1,50,000 per year. This is the income that is foregone when he started running a restaurant.

3 0
3 years ago
On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On April 8, Lee Co
Mumz [18]

Answer:

Interest Expense

Explanation:

If any company takes a loan from any bank or borrow from other sources for a specific time, that company has to pay a combination of principal amount and an additional expenses during the maturity period. That extra cost is called interest expense. As Lee company borrows a loan on January 8 and will pay the loan on April 8 with an interest rate, the company has to pay an interest expense of $100,000 × 6% × (90 ÷ 360) = $1,500.

8 0
3 years ago
Describe the events that occur in an efficient market in response to new information that causes the expected return to exceed t
nadya68 [22]

Answer:

The efficient market hypothesis tells, in an equilibrium, the price of stocks or security is an unbiased estimate of the true values.

Explanation:

  • Thus, in the equilibrium,  of security prices are neither an overvalued nor are undervalued. Suppose the investors learn new information about the company that suggests there stock is worth more than the current price.  
  • The security gets undervalued expected return exceeds the required return. Increased in demand for security from the investors with this new information will thus bid up the market value plus reduce its expected return until they are equal.

7 0
3 years ago
Segments of business's macroenvironment include all of the following except a. the economic environment. b. the social environme
fgiga [73]

Answer:

d. the natural environment.

Explanation:

There are two business environment

The first one is microenvironment and the other one is the macro environment

The microenvironment refers to that environment that covers the business functions with respect to the general public, customers, competitors, employees, etc

While the macro environment refers to that environment that affects the business functions or its workings

It can be in various ways like

1. Political & legal  

3. Social

4. Technological

5. Demographic

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6 0
3 years ago
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