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seraphim [82]
3 years ago
9

Frieda Inc. is considering a capital expansion project. The initial investment of undertaking this project is $105,500. This exp

ansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2, 3, 4 and 5 are estimated to be $22,500, $25,800, $33,000, $45,936 and $58,500 respectively. Frieda has a capital structure consisting of 20% debt and 80% equity. The after-tax cost of debt is 16% and the cost of equity is 18.5%.
What is Frieda%u2019s weighted average cost of capital?
a. 16%
b. 18%
c. 24%
d. 22%
Business
1 answer:
Nana76 [90]3 years ago
7 0

Answer:

WACC = 0.18 or 18%

Option b is the correct answer.

Explanation:

The WACC or weighted average cost of capital is the cost of a firm's capital structure that can contain one or more of the following components, namely debt, preferred stock and common equity. The formula to calculate the WACC is as follows,

WACC = wD * rD * (1-tax rate)  +  wP * rP  +  wE * rE

Where,

  • w represents the weight of each component
  • D, P and E represents debt, preferred stock and common equity respectively
  • r represents the cost of each component
  • rD * (1-tax rate) represents the after tax cost of debt

WACC = 0.2 * 0.16   +   0.8 * 0.185

WACC = 0.18 or 18%

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The Blackburn Group has recently issued 20minus​year, unsecured bonds rated BB by​ Moody's. These bonds yield 443 basis points a
MArishka [77]

Answer:

Explanation:

First, convert the basis points to a percentage or decimal;

1 basis point = 0.01% or 0.0001 as a decimal

Then 443 basis points as a decimal will be;

443 *0.0001 = 0.0443 or 4.43% as a percentage

Next, since the BB bond is 4.43% above the U.S. Treasury yield of 2.76%, find the Yield to maturity(YTM) by adding the 4.43% to the 2.76%;

YTM = 2.76% + 4.43%

YTM = 7.19%

4 0
4 years ago
Question: 1 of 37: Alice earned $622.50 in interest on her savings in the bank. Before interest, the account had $12,450. What i
SpyIntel [72]
<span>Alice had original amount = $12,450. She earned an interest of $622.50 on the original amount. To find the percent, say, $622.50 = x% of $12,450, we get x% = 0.05 or x = 5%. Thus, Alice earned approximately 5% of the interest.</span>
8 0
3 years ago
Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personall
topjm [15]

Answer:

Chemical Mines

The most likely outcome of this situation given that some shareholders are happy with the existing management is:

A) proxy fight for control of the board.

Explanation:

Proxy fight is a competitive struggle that shareholders of Chemical Mines can engage in to support their factional sides by using proxy votes to gain control of the board of directors, thereby stirring decisions to their sides.  Proxy votes are the votes of shareholders elected to represent the absentee shareholders by those present at the annual general meeting, where directors can be appointed.

6 0
3 years ago
Match the following statements to the appropriate terms.
ololo11 [35]

Answer:

Matching Statements to Appropriate Terms:

Price-earnings ratio = Profitability Ratio

Return on Assets = Profitability Ratio

Accounts Receivable Turnover = Liquidity Ratio

Earnings per share = Profitability Ratio

Payout ratio = Profitability Ratio

Working capital = Liquidity Ratio

Current ratio = Liquidity Ratio

Debt to Assets = Solvency Ratio

Free Cash Flow = Solvency Ratio

Explanation:

Profitability Ratios are one of the classes of financial metrics that measure a business's ability to generate earnings relative to its revenue, operating costs, assets, or shareholders' equity during a period of time.

Liquidity Ratios measure the ability of the company to pay its maturing short-term debt obligations from its current assets.  They include the working capital, the current ratio, and the acid-test ratio.

Solvency Ratios measure the ability of the company to pay its maturing long-term debt obligations from its assets.

8 0
4 years ago
A consumer charges a $2,530. 16 purchase on their credit card. The card has a daily interest rate of 0. 42%. If the consumer pay
aleksandr82 [10.1K]

Answer:

C. $31.88 is the correct answer.

Explanation:

8 0
2 years ago
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