Answer:
Check the following calculations
Explanation:
Bond trade at Par, thus,
Cost of Debt = Coupon rate = 8%
Tax rate = 35%
Post-tax cost of Debt (kd) = 0.08*(1-0.35) = 0.052
Beta of stock = 1.25
Market return = 10%
T-bills rate = 4%
Cost of Equity (ke) = 0.04*1.25*(0.1-0.04) = 0.115
Debt to equity ratio = 3
Weight of Debt (wd) = 3/4 = 0.75
Weight of equity (we) = 0.25
WACC= wd * kd+ we *ke
WACC =0.75* 0.052+0.25* 0.115
WACC =0.06775
WACC= 6.76%
Please note: In above solution, CAPM model used to determine the cost of equity because CAPM model gives minimum required return by equity investors.
Answer:
d. Equilibrium price will increase, equilibrium quantity will decrease"
Explanation:
"Ceteris paribus" all things being equal; the higher the price, the lower the quantity demanded. If there are speculations about possible increment in price of wheat in near future time, it will result into panic buying of wheat in the market today and that will definitely increase the equilibrium price of the wheat and decrease the equilibrium quantity of wheat demanded.
Answer:
A. $340 million
B. $40 million
Explanation:
A. Calculation for the amount that would appear in that statement for operating income
Sales revenue $2,200
Less: Cost of goods sold ($1,440)
Selling expense ($215)
General and administrative expense ($205)
Operating income $340 million
Therefore the amount that would appear in that statement for operating income will be $340 million
B. Calculation for the amount that would appear in that statement for non operating income
Interest expense $45
Less Gain on sale of investments $85
Non-operating income $40 million
Therefore the amount that would appear in that statement for nonoperating income will be $40 million