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lapo4ka [179]
3 years ago
15

Suppose Simmons' common stock has a beta of 1.37, the risk-free rate is 3.4 percent, and the market risk premium is 8.2 percent.

The yield to maturity on the firm's bonds is 7.6 percent and the debt-equity ratio is .45. What is the WACC if the tax rate is 23 percent and all interest is tax deductible?
Business
1 answer:
rjkz [21]3 years ago
7 0

Answer:

The WACC of the firm is 11.91%

Explanation:

The WACC or weighted average cost of capital is the rate of return that a business is expected to pay to all of its security holders- bonds, common stock, preferred stock- or is the cost of capital for the business.

To calculate the WACC, we use the following formula,

WACC = D/A * (1-tax rate) * rD  +  E/A * rE

Where,

  • D/A and E/A is the weightage of debt and assets as a proportion of total assets
  • rD * (1-tax rate) is the after tax cost of debt
  • rE is the cost of equity or required rate of return on equity

We first need to calculate the required rate of return on equity (r). We will use the CAPM formula for r.

r = 0.034 + 1.37 * 0.082

r = 0.14634 or 14.634%

The total assets are equal to,

Assets = Debt + Equity

If for every $1 of equity, there is $0.45 of debt as given by debt-equity ratio.

Then,

Assets = 0.45 + 1    

Assets = $1.45

WACC = 0.45/1.45 * (1-0.23) * 0.076  +  1/1.45 * 0.14634

WACC = 0.11908 or 11.908% rounded off to 11.91%

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Presented below is information related to Bobby Engram Company.
Natasha_Volkova [10]

Answer:

A. $ 98,210

B1. Cost to retail percentage 60%

B2. Cost to retail percentage 65.73 %

B3. Cost to retail percentage 58 %

B4. Cost to retail percentage 63.33 %

Explanation:

A. Computation for the ending inventory at retail

Inventory at Retail

Beginning Inventory $ 100,000

Purchase ( Net ) $ 200,000

Net Markup $ 10345

Less Net Markdown ($26,135)

Less Sales Revenue ($ 186,000)

Ending Inventory $ 98,210

Therefore the ending inventory at retail will be $ 98,210

B1) Computation for a cost-to-retail percentage

Excluding both markups and markdowns.

Cost to Retail Percentage

Excluding both Markup and Markdown

Cost Retail

Beginning Inventory $ 58,000 $ 100,000

Purchase (Net) $ 122,000 $ 200,000

Total $ 180,000 $ 300,000

Cost to retail percentage = $180,000/$300,000 Cost to retail percentage = 60%

B2. Computation for a cost-to-retail percentage Excluding Markups but Including Markdown

Cost Retail

Beginning Inventory $ 58,000 $ 100,000

Purchase (Net) $ 122,000 $ 200,000

Less Mark down ($ 26,135)

Total $ 180,000 $273,865

Cost to retail percentage= $180,000 /$ 273,865*100

Cost to retail percentage= 65.73 %

B3. Computation for a cost-to-retail percentage Excluding Markdowns but including Markups

Cost Retail

Beginning Inventory $ 58,000 $ 100,000

Purchase Net $ 122,000 $ 200,000

Add Net Markups $ 10,345

Total $180,000 $ 310,345

Cost to retail percentage = $180,000 / $ 310,345*100

Cost to retail percentage = 58 %

B4. Computation for a cost-to-retail percentage Including both Markups and Markdown

Cost Retail

Beginning Inventory $58,000 $100,000

Purchase Net $ 122,000 $ 200,000

Net Markups $ 10,345

Less Net Mardown ($26,135)

Total $ 180,000 $ 284,210

Cost to retail percentage = $ 180,000/ $ 284,210 × 100

Cost to retail percentage = 63.33 %

Therefore the cost-to-retail percentage are:

B1. Cost to retail percentage 60%

B2. Cost to retail percentage 65.73 %

B3. Cost to retail percentage 58 %

B4. Cost to retail percentage 63.33 %

8 0
2 years ago
If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U
Aleksandr [31]

Answer: financial inflow will reduce the United States interest rate.

Explanation:

The options include:

a. financial inflow will reduce the United States interest rate.

b. financial outflow will increase the Japanese interest rate.

c. The interest rate gap between the United States and Japan will be eliminated.

d. Loanable funds will be exported from the U.S. to Japan

e. the interest rate in the United States will equal theinterest rate in Japan.

Based on the information given in the question, the things that will occur include:

• financial outflow will increase the Japanese interest rate.

• The interest rate gap between the United States and Japan will be eliminated.

• Loanable funds will be exported from the U.S. to Japan

• the interest rate in the United States will equal the interest rate in Japan.

Therefore, option A is the correct option.

6 0
3 years ago
LeMay Department Store uses the retail inventory method to estimate ending inventory for its monthly financial statements. The f
Nutka1998 [239]

Answer:

Cost to retail ratio = 57.05%

Explanation:

Particulars                                                               Cost       Retail

Beginning Inventory                                            $46,000    $66,000

Add: Purchases                                                    $213,000   $406,000

Less: Purchases Return                                       $7,000       $9,000

Freight In                                                               $15,558          -

Net Markups                                                               -             $6,400

Good Avail. for Sales (Without markdowns)   $267,558   $469,000

Cost to retail ratio = $267,558/$469,000

Cost to retail ratio = 0.570486

Cost to retail ratio = 57.05%

6 0
3 years ago
A​ well-established automobile dealership just hired you as an intern in the back office. Since you​ started, you have disco
ra1l [238]

Answer: marketing plan

   

Explanation: In simple words, marketing plan refers to the plan that outlines the set of activities that an organisation has to perform for the next year in respect to its  advertising and marketing efforts. A market plan is seen as a sub part of a business plan.

It helps an organisation to effectively perform its marketing activities as it outlines the sources , methods and timing of how it will be performed. Thus, in the genitive case, company should make a marketing plan by which they can aware their customers and can increase their market share.      

8 0
3 years ago
How many years are required for an investment to double in value if it is appreciating at the rate of 9​% compounded​ continuous
Vesna [10]

Answer:

time required is 7.70 years

Explanation:

given data

interest rate = 9%

solution

we know with the compounded​ continuously rate r and time t amount is

A(t) = A(o) e^{rt}     .................1

and we have given amount is double so

A(t) = 2 A(o)

so from equation 1 put the value and we get here

2 A(o) = A(o) e^{rt}

ln(2) = 0.09 t

solve it we get time

time t = 7.70 years

so time required is 7.70 years

7 0
3 years ago
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