Answer:
a) 13.18%
b) 9.06%
c-1) 14.55%
c.2) 11.805%
c.3) 9.06%
Explanation:
debt = 60%, cost of debt = 5.4% x 0.75 = 4.05%
equity = 40%, Re = ?
WACC = 7.7%
7.7% = (40% x Re) + (60% x 4.05%)
7.7% = (40% x Re) + 2.43%
(40% x Re) = 5.27%
Re = 5.27% / 40% = 13.175 = 13.18%
13.18% = ReU + (ReU - 0.054) x 1.5 x (1 - 25%)
13.18% = ReU + (ReU - 0.054) x 1.125
0.1318 = ReU + 1.125Reu - 0.06075
0.19255 = 2.125ReU
ReU = 0.19255 / 2.125 = 9.06%
ReL = 9.06% + (9.06% - 5.4%) x 2 x 0.75
ReL = 14.55%
ReL = 9.06% + (9.06% - 5.4%) x 1 x 0.75
ReL = 11.805%
2. Significant fluctuations in the market would actually be corrected
Answer:
16.25;
g(f(x)) ;
76 ;
f(g(x))
Explanation:
For 15 off
f(x) = x - 15
For 35% off
g(x) = (1 - 0.35)x = 0.65x
g(x) = 0.65x
A.)
For the $15 off coupon :
f(x) = x - 15
f(x) 40 - 15 = 25
For the 35% coupon :
g(x) = (1-0.35)x
g(x) = 0.65(25)
g(x) = 16.25
B.)
Applying $15 off first, then 35%
Here, g is a function of f(x)
g(f(x))
Here g(x) takes in the result of f(x) ;
For the $140 off coupon :
f(x) = x - 15
f(140) = 140 - 15 = 125
For the 35% coupon :
g(125) = (1-0.35)x
g(124) = 0.65(125) = $81.25
C.)
x = 140
g(x) = 0.65x
g(140) = 0.65(140)
g(140) = 91
f(x) = x - 15
f(91) = 91 - 15
f(91) = 76
D.)
Here, F is a function of g(x)
f(g(x))
f(x) = (0.65*140) - 15
