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yuradex [85]
2 years ago
15

You were hired as a consultant to the ABC Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equ

ity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of equity is 11.25%, and the tax rate is 40%. What is ABC's WACC
Business
1 answer:
TEA [102]2 years ago
5 0

Answer:

8.15%

Explanation:

The weighted average cost of capital is the sum of costs of different  sources of finance multiplied by their respective weights as shown by the formula below:

WACC=(cost of equity*weight of equity)+(cost of preferred stock*weight of preferred stock)+(after-tax cost of debt*weight of debt)

cost of equity=11.25%

weight of equity=55%

cost of preferred stock=6.00%

weight of preferred stock=10%

after-tax cost of debt=6.50%*(1-40%)=3.90%

weight of debt=35%

WACC=(11.25%*55%)+(6.00%*10%)+(3.90%*35%)

WACC=8.15%

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Financial markets have the ultimate purpose of:________
Softa [21]

Answer:

Financial markets have the ultimate purpose of:

C. Bringing several parties together in order to engage in buying, selling, and trading activity of financial assets

Explanation:

A financial market is a platform that brings several parties together in order to engage in buying, selling , and trading activity of financial assets. It generally offers an opportunity to investors in financial assets to either buy or sell the assets. Some examples of financial assets include; securities, bonds, stocks, and currency.

In capitalistic economies where there is high competition, the access of financial assets play a major role in ensuring that such economies run smoothly. Financial markets make it is for companies to trade their financial assets in an easy and fast manner. It also provides more accessibility to borrowers and also give an opportunity to the lenders to earn some interest on their money.

Financial markets involve the buying and selling of various financial assets and thus there is need for transparency to ensure that the market prices are fair. The information about the prices need to be clear and appropriate to protect investors.

7 0
3 years ago
A copy machine acquired with a cost of $1,410 has an estimated useful life of 4 years. It is also expected to have a useful oper
mafiozo [28]

Answer:

a. Straight-line method

Depreciation Expense for the first year: $333.75

b. Double-declining-balance method

Depreciation Expense for the first year: $667.5

c. Units-of-output method

Depreciation Expense for the first year: $450

Explanation:

a. Straight-line method

Depreciation Expense each year is calculated by following formula

Annual Depreciation Expense = (Cost of machine − Residual Value)/Useful Life = ($1,410 - $75)/4 = $333.75

Depreciation Expense for the first year: $333.75

b. Double-declining-balance method

Under the straight-line method, useful life is 4 years, so the asset's annual depreciation will be 25% of the Depreciable cost.

Depreciable cost = Total cost of machine - Residual value =  $1,410-$75 = $1.335

Under the double-declining-balance method the 25% straight line rate is doubled to 50% - multiplied times

Depreciation Expense for the first year = $1.335 x 50% = $667.5

c. Units-of-output method

Depreciation Expense per copy = (Cost of machine − Residual Value)/Life in Number of Units  = ($1,410 - $75)/13,350 = $0.1

Depreciation Expense for the first year = Depreciation Expense per copy x number of copies were made the first year = $0.1 x 4,500 = $450

3 0
3 years ago
Lumpkin Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purc
KATRIN_1 [288]

Answer:

<u>February.</u>

Desired ending inventory = 10% of March Cost of goods(COGS):

= 10% * 35,000

= $3,500

Inventory needed = COGS + ending inventory

= 32,000 + 3,500

= $35,500

Beginning inventory = January ending inventory = $3,200

Required Purchases = Inventory needed - Beginning inventory

= 35,500 - 3,200

= $32,300

<u>March</u>

Desired ending inventory = 10% of April COGS:

= 10% * 40,000

= $4,000

Inventory needed:

= 35,000 + 4,000

= $39,000

Beginning inventory = February ending inventory = $3,500

Required purchases:

= 39,000 - 3,500

= $35,500

8 0
2 years ago
Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to
Nookie1986 [14]

Answer:

a. $2,200,000

Explanation:

We solve considering the inventory identity:

$$Beginning Inventory + Purchase = Ending Inventory + COGS

$$ Purchase = (Ending Inventory - Beginning Inventory) + COGS

the difference during the year means the difference between ending and beginning inventory was of 200,000

So we plug that into the formula and solve

$$ Purchase = +200,000 + 2,000,000

Purchase 2,200,000

4 0
2 years ago
An investor purchases a 12-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of in
marysya [2.9K]

Answer:

Value of the bond = $862.013

Explanation:

The value of the bond is the present value of the future cash receipts expected from the bond. The value is equal to present values of interest payment and the redemption value (RV).

Value of Bond = PV of interest + PV of RV

The value of the bond can be worked out as follows:

Step 1

<em>Calculate the PV of Interest payment </em>

Present value of the interest payment

PV = Interest payment × (1- (1+r)^(-n))/r

Interest payment = $40

PV = 40 × (1 - (1.05)^(-12×2)/0.05)

= 40 × 13.7986

= 551.945

Step 2

<em>PV of redemption Value </em>

PV of RV = RV × (1+r)^(-n)

= 1000 × (1.05)^(-12×2)

= 310.067

Step 3

<em>Calculate Value of the bond  </em>

= 551.94567 + 310.067

=862.01

Value of the bond = $862.013

 

3 0
3 years ago
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