Answer:
Please refer explanation and attachment
Explanation:
The income statement has been provided in attachment 1 and balance sheet in attachment 2. Unfortunately, due to lack of information such as depreciation, lease details and mortgage payments, the balance could not be tallied. However, all information provided has been used to derive the results shown.
Answer:
1. Debt
2. 8.75%
3. 8.85%
4. 6.195%
Explanation:
For computing the tax adjustment, the Debt capital component is taken
The normal formula to compute WACC is shown below:
= Weightage of debt × cost of debt × ( 1- tax rate) + (Weightage of preferred stock) × (cost of preferred stock) + (Weightage of common stock) × (cost of common stock)
The computation of the pre-tax cost of debt and after-tax cost of debt is shown below:
1. The after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 12.50% × ( 1 - 0.30)
= 8.75%
The NPER represents the time period.
Given that,
Present value = $1,382.73
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 13% = $130
NPER = 20 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this,
3. The pretax cost of debt is 8.85%
4. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 8.85% × ( 1 - 0.30)
= 6.195%
