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DaniilM [7]
2 years ago
14

Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery ba

gs, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. CGT's balance sheet data are as follows.
The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6- month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 40%. Determine the best estimate of the after-tax cost of debt.
Assets 2018
Current assets $38,000,000
Net plant, property, and equipment $101,000,000
Total assets $139,000,000
Liabilities & Equity
Accounts payable $10,000,000
Accruals $9,000,000
Current liabilities $19,000,000
Long-term debt (40,000 bonds.
$1,000 par value) $40,000,000
Total liabilities $59,000,000
Common stock (10,000,000 shares) $30,000,000
Retained earnings $50,000,000
Total shareholders' equity $80,000,000
Total liabilities and shareholders' equity $139,000,000
a. 5.40%.
b. 5.67%.
c. 4.64%.
d. 5.14%.
Business
1 answer:
koban [17]2 years ago
8 0

Answer:

d. 5.14%.

Explanation:

Calculation to determine the best estimate of the after-tax cost of debt.

First step

Based on the information given we would make use of rate formula in excel.

=rate(nper,pmt,-pv,fv)

Where,

nper= coupon every six months for 20 years = 40 coupon payments

Pmt =$1000*7.25%*6/12=$36.25

Pv = $875

Fv =$1000

Let plug in the formula

=rate(40,36.25,-875,1000)=4.28% semiannually

=4.28% *2=8.56% annually

Now let calculate the after tax cost of debt using this formula

After tax cost of debt=8.56%*(1-t)

Where,

t represent tax rate of 40%

Let plug in the formula

After tax cost of debt=8.56%*(1-0.4)

After tax cost of debt=5.14%

Therefore the best estimate of the after-tax cost of debt is 5.14%

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Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recen
Rus_ich [418]

Answer:

Instructios are listed below.

Explanation:

Giving the following information:

Laptops:

Selling price= $1,600

Cost per unit= $800

Sale mix= 40%

Tablets:

Selling price= $850

Cost per unit= $350

Sale mix= 60%

The estimated fixed costs for the current year are $2,498,600

A) Break-even point (units)= Total fixed costs / (weighted average selling price - weighted average variable expense)

Weighted average selling price= (1600*0.40) + (850*0.60)= $1,150

Weighted average variable expense= (800*0.40) + (350*0.60)= 530

Break-even point (units)= 2,498,600 / (1150 - 530)= 4,030 units

B) Laptops= 4030*0.40= 1,612 units

Tablets= 4030*0.60= 2,418 units

4 0
3 years ago
What is the prime reason that Jenny's discretionary income is more volatile than her salary?
sweet [91]

Answer:

c. Her mortgage payments and necessities are fixed

Explanation:

Discretionary income is the remaining income after being paid out for all fixed expenses (i.e. Discretionary income = Salary - Mortgage - Income tax etc). The primary reason for variability in it is due to the mortgage payment and fixed expenses from the basic salary received.

So, option c is correct while other options are incorrect as tax does not affect as well as cost of living

7 0
3 years ago
5.ABC Company is planning to market a new model of product X. The management
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Answer:

Que

Explanation:

Que

7 0
2 years ago
You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the p
nalin [4]

Answer: income effect of a price change.

Explanation: The income effect is known as the effect on real income when price changes, it can however be positive or negative. The income effect expresses the impact of increased purchasing power on consumption.

In this scenario, spending $10 for lunch, and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger, this scenario best illustrates the income effect of a price change.

7 0
2 years ago
Assume that Mahmood Corp. lends Ahmad $10,000 in exchange for a $10,000,
kolezko [41]

Answer:

1) the present value of the note:

PV of face value = $10,000 / (1 + 8%)³ = $7,938.32

PV of interest payments = $1,000 x 2.5771 (PV annuity factor, 8%, 3 periods) = $2,577.10

PV of note = $10,515.42

2) Dr Notes receivable 10,515.42

         Cr Cash 10,000

         Cr Discount on notes receivable 515.42

3) assuming the loan was made January 2, 2021

Date                         Cash flow     Discount         Balance

January 2, 2021       -$10,000                             $10,515.42

January 2, 2022       $1,000        $171.81            $10,343.61

January 2, 2023       $1,000        $171.81             $10,171.80    

January 2, 2024       $11,000       $171.80                  $0

4) December 31, accrued interest on notes receivable

Dr Interest receivable 1,000

Dr Discount on notes receivable 171.81

      Cr Interest revenue 1,171.81

7 0
2 years ago
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