Answer:
The correct answer is option (D)
Explanation:
Solution
Given that:
The present value of equity factor for 5 years at 12% discount are = 3.60478
Then,
The present value of servicing costing = -$500 * 3.60478 = -$1802.39
Thus,
The present value of cost to buy =- $18000
The total Present value = -18000 + 1802.39 = -$19802.39
So,
The equivalent annual annuity = total Present value / present value of equity factor
= -$19802.39 / 3.60478
= -$5493.37
Therefore, the equivalent annual annuity of this deal is -$5493.37
The percentage nominal GDP change is 20%
The Real GDP growth is 15%
Explanation:
GDP is the final value (market) of all final services and goods produced during a financial year.
Since prices of the goods and services fluctuate with time, hence to get a real idea of economic growth, economist calculate two types of
Nominal GDP- GDP of the economy calculated at the current prices. This GDP does not factor the inflationary effect on the GDP calculation.
Real GDP- This is the original increment/decrement in the net price of final goods and services in a year. Real GDP adjusts the inflationary effects component on the GDP calculation.
Nominal GDP is the previous year- $10 billion
Final nominal GDP- $12 billion
% change in the nominal GDP= (final GDP-GDP in the previous year) *100/GDP in the previous year
% change in the nominal GDP= (12-10) *100/10
% change in the nominal GDP=20%
Inflation in the Econland= 5%
Real GDP change= Change in Nominal- inflation rate
Real GDP change=20%-5%
Real GDP change=15%
Answer:
The debt-equity ratio need to be 1.01 for the firm to achieve its target WACC
Explanation:
In order to calculate the debt-equity ratio we would have to calculate the following formula:
debt-equity ratio=Weight of debt/Weight of equity
To calculate the Weight of debt we would have to use the formula to calculate the WACC as follows:
WACC = Wd×Rd×(1-t)+We×Ke
Therefore, according to the given data:
11.20% = Wd×8.70%×(1-35%)+(1-Wd)×16.80%
11.20% = Wd×5.655%+16.80%-16.80%×Wd
11.145%×Wd = 5.60%
Weight of debt=0.5025
Weight of equity=1-Weight of debt
Weight of equity=1-0.5025
Weight of equity=0.4975
Therefore, debt-equity ratio=0.5025/0.4975
debt-equity ratio=1.01
The debt-equity ratio need to be 1.01 for the firm to achieve its target WACC