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Luba_88 [7]
2 years ago
8

A back up copy is also called?

Business
1 answer:
guajiro [1.7K]2 years ago
5 0

Answer:

I think it is the third one

Explanation:

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You are given the following information concerning Parrothead Enterprises: Debt: 9,300 7.4 percent coupon bonds outstanding, wit
Law Incorporation [45]

Answer:

a. Cost of debt = 5.03%.

b. Cost of equity = 11.47%

c. Cost of preferred stock = 4.90%

Explanation:

a. Calculation of cost of debt

The bond's Yield to Maturity is the before tax cost of debt and it can be calculated using the following RATE function in Excel:

YTM = RATE(nper,pmt,-pv,fv) * 2 .............(1)

Where;

YTM = yield to maturity = ?

nper = number of periods = number of semiannuals to maturity = Number of years * Number of semiannuals in a year = 21 * 2 = 42

r = semiannual coupon rate = Annual coupon rate / 2 = 7.4% / 2 = 0.074 / 2 = 0.037

pmt = semiannual coupon payment = semiannual coupon rate * Face value = 0.037 * $2,000 = $74 = 74

pv = present value = quoted bond price = 108.75% * fv = 108.75% * 2000 = 2,175 = 2175

fv = face value or par value of the bond = 2000

Substituting the values into equation (1), we have:

YTM = RATE(42,74,-2175,2000) * 2 ............ (2)

Inputting =RATE(42,74,-2175,2000)*2 into excel (Note: as done in the attached excel file), the YTM is obtained as 6.62%.

Therefore, we have:

After tax cost of debt = YTM * (100% - Tax rate) = 6.62% * (100% - 24%) = 5.03%

Therefore, cost of debt is 5.03%.

b. Calculation of cost of equity

Based on the information in the question, the return on equity can be calculated using the dividend discount model and capital asset pricing model (CAPM) formulae.

b-1. Using the dividend discount model formula, we have:

P = D1 / (r – g) ………………………. (3)

Where:

P = Common stock selling price per share = $66.40

D1 = Next year dividend = $4.60

r = return on equity = ?

g = dividend growth rate = 5.4%, or 0.054

Substituting the value into equation (3) and solve for r, we have:

66.40 = 4.60 / (r – 0.054)

66.40(r – 0.054) = 4.60

66.40r - 3.5856 = 4.60

66.40r = 4.60 + 3.5856

66.40r = 8.1856

r = 8.1856 / 66.40

r = 0.1233, or 12.33%

b-2. Using CAMP formula, cost of equity can be calculated as follows:

Return on equity = Risk free rate + Stock beta(Expected return – Risk free rate) = 4.55% + (1.09 * (10.1% - 4.55%)) = 10.60%

b-3. The cost of equity can therefore be calculated as the average of the returns of equity from the two formulae is as follows:

Cost of equity = (12.33% + 10.60%) / 2 = 11.47%

c. Calculation of cost preferred stock

Note that since the preferred stock selling price per share is $95.90, it indicates that it par value is $100 and is being sold at a discount. Therefore, we have:

Cost of preferred stock = (Preferred stock dividend rate * Preferred stock par value) / Preferred stock selling price per share = (4.70% * 100) / 95.90 = 0.0490, or 4.90%

Download xlsx
4 0
2 years ago
What is authorize share​
kap26 [50]

Answer:

Explanation:

Authorized shares are the number of shares that a corporation is legally allowed to issue, while outstanding shares have already been issued. Thus, the number of outstanding shares is always equal to or less than the number of authorized shares.

3 0
3 years ago
Read 2 more answers
What is the best source of information to use when purchasing a new car?
Elza [17]
Unpaid reviews on reputable car sites.

social media spreads lies, car salesman might lie about the car in order to make a sale, and an ad will do the same.
3 0
3 years ago
The expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is 0.8 and the beta of B is 1.5.
Zigmanuir [339]

Answer:

Portfolio B has a higher return but more volatile stocks. However it depends on how the individual can tolerate risks.

Explanation:

Expected return= free return + Beta (Expected rate of return – risk free rate)

Portfolio A

6%+ +.8*6%

= 6%+4.8%= 10.8%

Portfolio B

6%+1.5(6%)

6%+9%= 15%

It depends on different factors. Portfolio B has a higher return but more volatile stocks. However it depends on how the individual can tolerate risks.

4 0
3 years ago
when banker expects a rise in interest rates in the fututre then the best strategy for the present is
oksano4ka [1.4K]

Answer:

Increase duration of the bank assets

Explanation:

Because When the duration of assets is longer than the duration of liabilities, this allows for a the duration gap is positive. And so even if interest rates rise, assets will lose more value than liabilities, hence reducing the value of the firm's equity.

7 0
3 years ago
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