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Rashid [163]
3 years ago
5

Swizer Industries has two separate divisions. Division X has less risk so its projects are assigned a discount rate equal to the

firm's WACC minus 0.5 percent. Division Y has more risk and its projects are assigned a rate equal to the firm's WACC plus 1 percent. The company has a debt-equity ratio of 0.45 and a tax rate of 35 percent. The cost of equity is 14.7 percent and the aftertax cost of debt is 5.1 percent. Presently, each division is considering a new project. Division Y's project provides a 12.3 percent rate of return and Division X's project provides an 11.64 percent return. Which projects, if any, should the company accept
Business
1 answer:
alexira [117]3 years ago
4 0

Answer:

B. Accept X and reject Y

Explanation:

Here are the options

A. Accept both X and Y

B. Accept X and reject Y

C. Reject X and accept Y

D. Reject both X and Y

E. The answer cannot be determined based on the information provided

the project should be accepted if the WACC of the department is less than the rate of return on the project

WACC = weight of equity x cost of equity + weight of debt x after tax cost of debt  

weight of debt = D / (D + E) = 0.45E /1.45E

weight of equity = E / (D + E) = E / 1.45E

WACC = ( 0.45E /1.45E) x (5.1)  + ( E / 1.45E) x 14.7

= 5.1 x (0.45/1.45)  + 14.7 x (1/1.45)

=1.583 + 10.138

11.72%

Division X's WACC = 11.72% - 0.5% = 11.22%

Division Y's WACC = 11.72% + 1% = 12.72%

The rate of return of Division Y's project is 12.3%. Thus, division Y's project should not be accepted

the rate of return of Division X's project is 11.64%. Thus, division X's project should be accepted

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a stock is priced at $45 per share. the stock has earnings per share of $3 and a market capitalization rate of 14%. what is the
yulyashka [42]

Answer: A concept known as Present Value of Growth Opportunities (PVGO) offers analysts a distinct method of appraisal. Given current stock values...

Explanation: Where is PVGO located?

PVGO is the value of a stock minus the earnings-to-cost ratio.

This strategy is predicated on the idea that businesses need to distribute profits to shareholders in the absence of a better use for them, such as investing in projects with a positive Net Present Value (NPV).

What is a stock's PVGO?

The portion of a company's share price that reflects forecasts for future profits growth is known as PVGO. The abbreviation "PVGO" stands for "present value of growth opportunities."

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6 0
1 year ago
A mother earned ​$ 7500.00 from royalties on her cookbook. she set aside​ 20% of this for a down payment on a new home. the bala
Marina CMI [18]
Amount of money deposited in the two accounts is 80% of 7500$.
Amount of money in the two accounts = 0.8 * 7500 = 6000$

Now assume that the amount deposited in CD account is m and the amount deposited in the saving bond is n.
m + n = 6000 
Therefore: m = 6000 - n ................> equation I

Now we write another equation expressing the savings:
0.04m + 0.07n = 360 ............> equation II

Substitute with equation I in equation II:
0.04 (6000-n) + 0.07n = 360
240 - 0.04n + 0.07n = 360
0.03n = 120
n = 4000 $

Substitute with n in equation I to get the value of m as follows:
m = 6000 - n = 6000 - 4000 = 2000

Based on these calculations:
The amount of money deposited in the CD = 2000$
The amount of money deposited in the saving account = 4000$
8 0
3 years ago
Gwen owns 357 shares of common stock in a software company. The software company
igomit [66]

Answer:

Dividend Yield = 0.25423 or 25.423% rounded off to 25.42%

Explanation:

The dividend yield is the return provided by a stock in form of dividend which is expressed as a percentage of the current market price. Thus, dividend yield can be calculated as follows,

Dividend Yield = Annual Dividend / Current Market Price

Dividend Yield for Gwen will be,

Dividend Yield = 3.75 / 14.75

Dividend Yield = 0.25423 or 25.423% rounded off to 25.42%

3 0
3 years ago
Tony's marginal income tax rate is 24%, and he pays FICA tax on his entire salary (7.65%). Tony's employer offered him a choice
Vlad [161]

Answer: The fringe benefit is worth $182 more than the additional salary.

Explanation:

The Fringe benefit is valued at $3,600.

The additional salary after taxes is:

= 5,000 - (5,000 * 24%) - (5,000 * 7.65%)

= 5,000 - 1,200 - 382.5

= $3,418

The Fringe benefit is worth more than the salary by:

= 3,600 - 3,418

= $182

<em>Options are more probably for a variant of this question. </em>

8 0
3 years ago
A company can shorten its cash cycle by: __________
Dafna1 [17]

Answer:

None of the above

Explanation:

Companies can shorten their cash cycles by turning over their inventory faster. The quicker a company sells its goods, the sooner it takes in cash from cash and credit card sales and begins its accounts receivable aging. Inventory turnover has no impact on the cash cycles of service companies with no inventory.

5 0
3 years ago
Read 2 more answers
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