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Olegator [25]
3 years ago
5

You are given the following information concerning Parrothead Enterprises:

Business
1 answer:
ElenaW [278]3 years ago
4 0

Answer:

WACC is 8.19%

Explanation:

WACC (Weighted Average Cost of Capital is determined by multiplying capital source cost of both equity and debt by their relevant weight and then summing the results to identify the value using the formulae given below:

WACC = (E/V x Re) + [D/V x Rd x (1 - Tc)]

where:

E = Market Value of the firm's equity

D = Market Value of the firm's debt

V =  E + D

Re = Cost of Equity

Rd = Cost of Debt

Tc = Tax Rate

In the given question, we will first determine the cost of equity. As shown below:

Cost of Equity = Average of CAPM and Dividend Capitalisation Model

CAPM = Risk free rate of return + Beta x (market rate of return - risk free rate of return)

CAPM = 3.75 + 0.93 x (11.7 - 3.75)

CAPM = 11.14%

Dividend Capitalisation Model = Expected dividend net year / Current Price + Growth Rate

Dividend Capitalisation Model = 3 / 64.8 * 100 + 5.3

Dividend Capitalisation Model = 9.93%

Cost of Equity = 9.93 + 11.14 = 10.54%

Next is the cost of debt which would be calculated using YTM (Yield to maturity)

where:

Par Value = 1047.5

Face Value = 1000

Coupon rate = 6.5

Years to maturity = 22 years

Coupon Payment Frequency is semi annually.

The Cost of debt = 6.1%

After Tax it would be 4.7% [6.1% * (1 - 23%)]

Next, we will determine the rate of preferred stock before calculating the WACC.

Rate of preferred stock = Annual dividend / Current Price * 100

Rate of preferred stock = 4.65 / 94.3 * 100

Rate of preferred stock = 4.93%

Finally, we will calculate the Market Value (MV) of equity, debt and preferred stock. As shown below:

MV Equity = 240,000 x 64.8 = 15,552,000

MV Debt = 1047.5 x 9300 = 9,741,750

MV preferred stock = 8,300 x 94.3 = 782,690

Total = 26,076,440

WACC = (15,552,000 / 26,076,440 * 10.54%) + (9,741,750 / 26,076,440 * 4.7%) + (782,690 / 26,076,440 * 4.93%)

WACC = 6.28% + 1.76% + 0.15%

WACC = 8.19%

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Answer:

true the reason why is because you are giving away more stuff than you are geting

Explanation:

7 0
3 years ago
Which of the following statements is CORRECT?a. Ethical behavior is not influenced by training and auditing procedures. People a
Yakvenalex [24]

Answer: b. . If someone deliberately understates costs and thereby causes reported profits to increase, this can cause the stock price to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted.

Explanation:

Ethics in business ad organization is very vital towards the accomplishment of goals in every organization. Ethical behavior can be influenced by training and auditing procedures.

It should be noted that when someone understates the cost intentionally maybe with the person trying to steal from the company. This can lead to the reported profits of the company to increase, and thereby cause the stock price to rise above its intrinsic value.

If eventually the stock will fall in the future, everyone who took part in this fraudulent activity and even the company itself can be prosecuted. Performing in fraudulent activities by a company or its workers will make the individuals or the company lose the trust of its clients.

Option B is the correct answer.

5 0
3 years ago
The folowing information applies to the questions displayed below] Hoboken Industries currently manufactures 48,000 units of par
kap26 [50]

Answer:

1. 72000 units.

2. $19.

Explanation:

Solution:

Part 1:

Let's Sort out the data given:

Monthly Cost Fixed = $240,000

Fixed Cost unavoidable = 40% x 240,000

Fixed Cost unavoidable = $96,000

Now,

Avoidable Fixed Cost will be = $240,000 - $96,000

Avoidable Fixed Cost will be = $144,000

It means that, if the industries obtain products from the outside supplier, it will save or avoid fixed cost of $144,000 per month.

Now, we also given that,

Variable Production Cost = $16 per unit

Purchase Price per unit (Outsider) = $18 per unit

Increment in Price per unit = $18 - $16 = $2

Hence,

It will cost the industry an extra of $2 per unit.

Now, we can calculate the required monthly usage at which it will be indifferent between purchasing and making part MR24.

Break Even Monthly Usage  = Avoidable Fixed Cost/ Incremental Price per unit.

Break Even Monthly Usage = $144,000/$2

Break Even Monthly Usage = 72000 units.

Hence, Monthly usage at which it will be indifferent between purchasing and making part MR24 = 72000 units.

Part 2:

Monthly usage as given = 48000 units on which it can avoid the fixed cost of $144,000

Avoidable Monthly fixed cost = $144,000

So, now, we can calculate the avoidable fixed cost per unit as well.

Avoidable Fixed Cost Per unit = $144,000/48000

Avoidable Fixed Cost Per unit = $3

We also know,

Variable Production cost per unit = $16

Avoidable Fixed cost per unit = $3

So, we can see the maximum purchase price in order to avoid monthly fixed cost.

Maximum Purchase price per unit = $16 + $3 =$19

It means, $19 is the maximum purchase price, if the industry is approaching the outsider for the monthly usage of 48000 units. It will benefit if the price is less than $19.

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Answer:

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faltersainse [42]

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