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Zepler [3.9K]
3 years ago
5

Markung's Co. is 100% equity-financed company (no debt or preferred stock); hence, its WACC equals it cost of common equality. M

arkung's Co.'s retained earnings will be sufficient to fund its capital budget in the foreseeable future. The company has a beta of 1.50, the risk-free rate is 5.0%, and the market return is 6.5%. What is Markung's Co.'s cost of equity?
Markung's Co. is financed exclusively using equity funding and has a cost of equity of 12.55%. It is considering the following projects for investment next year:
Project Required Investment Expected rate of return
W $22,450 13.10%
X $12,750 10.10%
Y $19,235 13.60%
Z $17,875 14.60%
Each Project has average risk, and Markung’s Co. accepts any project whose expected rate of return exceeds its cost of capital. How large should next year’s capital budget be?
Business
1 answer:
sergij07 [2.7K]3 years ago
6 0

Answer:

Markung Cost of Equity:

For this you should use the Capital Asset Pricing Model:

Cost of equity = Risk free rate + Beta * (Market return - Risk free rate)

= 5% + 1.50 * (6.5% - 5%)

= 7.25%

Total capital budget:

They will only pick projects with a rate of return that is higher than 12.55%:

= Project W + Project Y + Project Z

= 22,450 + 19,235 + 17,875

= $59,560

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loss by hedging = $24395.6 - $23757.43  

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4 0
3 years ago
On December 31, 2020, McDaniel Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2021. On J
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Calculation to Show how the $1,200,000 of short-term debt should be presented on the December 31, 2017, balance sheet.

Hattie McDaniel Company

Partial Balance Sheet

December 31, 2017

CURRENT LIABILITIES

Notes Payable 250,000

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LONG-TERM DEBT

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Therefore how the $1,200,000 of short-term debt should be presented on the December 31, 2017, balance sheet is:

Current Liabilities:Notes Payable 250,000

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4 0
3 years ago
To assist broker-dealers with compliance, NASAA prepared a fee disclosure template. Based on the template, all of the following
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2 years ago
If the demand for a good rises by more than the supply of the good falls, then the good’s equilibrium price will __________ and
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Rises

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