Answer:
WACC = ke(E/V) + Kd(D/V)
WACC = 15(0.40) + 9(0.60)
WACC = 6 + 5.4
WACC = 11.4%
Explanation:
WACC is a function of cost of equity multiplied by the proportion of equity in the capital structure plus cost of debt multiplied by the proportion of debt in the capital structure. The proportion of equity in the capital is expressed as E/V (0.40) while the proportion of debt in the capital structure is expressed as D/V (0.60).
The correct answer is false
The major advantage of debt financing is the number of different sources from which it is available amortization benefits.
It is referred to as debt financing when a business takes out a loan that will be repaid with interest at a later time. A secured or unsecured loan could be used to finance it. To finance operating capital or an acquisition, a company will take out a loan.
A party, the debtor, is obligated by a debt to pay another person, the creditor, money or another agreed-upon value. In contrast to an immediate purchase, debt involves deferred payments or a series of payments.
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Answer:
b. should be; should definitely not be
Explanation:
When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation <u>should be </u>included explicitly in the cash flow analysis, and debt payments by the subsidiary <u>should definitely not be</u> included explicitly in the cash flow analysis.
Inflation and movements in exchange rates reduces and impacts the value of cashflows and the real returns to be derived from an investment and must be considered in every investment analysis to take account of the time value of money.
Debt payments are NOT a requirement in investment analysis because the interest rate of the loans have been factored into the cost of capital with which the cashflows have been discounted
Answer:
Demand is Inelastic
Jack : Substitution Effect dominates
Becky : Buy fewer hiking boots
Explanation:
Elasticity of Demand is responsive change in demand due to change in price. Demand is : Elastic - When proportionate change (% change) in demand > proportionate (% change) in price and Inelastic - When proportionate change (% change) in demand < proportionate change (% change) in price .
So, If price rise by 12% & demand decreases by 10% , Demand is Inelastic.
a. Substitution Effect is consumer's shift from dearer to cheaper goods & so, rise in demand of falling prices good , fall in demand of rising prices good . Jake buying lesser T shirts (relatively expensive) when price of Donuts fall (relatively cheaper) means Substitution Effect dominates for him.
b. Income Effect is price - demand inverse relationship, by change in real purchasing power due to price change. Price rise reduces real purchasing power, decreases demand & price fall increases real purchasing power, increases demand. Becky's paint brush price rise reduces her real purchasing power & she consumes less of both paintbrushes & hiking boots.
