**ECONOMY**

What are the things found in a bank

alexandr402 [8]

Sentences......

Writing.....

Poems.....

Drawing......

Cursive......

Words......

Or just a blank.....

4 0

3 years ago

The company estimates that it can issue debt at a rate of rd = 9%, and its tax rate is 40%. It can issue preferred stock that pa

klio [65]

Answer:

a)

Cost of debt (after tax) = 5.4%

Cost of preferred stock ( $r_p$ ) = 10.53%

Cost of common stock ( $r_e$ ) = 16.18%

b)

WACC = 14%

c)

project 1 and project 2

Explanation:

Given that:

Debt rate ( $r_d$ ) = 9% = 0.09

Tax rate (T) = 40% = 0.4

Dividend per share ( $D_p$ ) = $6

Price per share ( $P_p$ ) = $57

Common stock price ( $P_0$ )= $39

Expected dividend ( $D_1$ ) = $4.75

Growth rate (g) = 4% = 0.04

The target capital structure consists of 75% common stock ( $w_e$ ), 15% debt ( $w_d$ ), and 10% preferred stock ( $w_p$ )

a)

Cost of debt (after tax) =` $r_d(1-T)= 0.09(1-0.4)=0.09*0.6=0.054$

Cost of debt (after tax) = 5.4%

Cost of preferred stock ( $r_p$ ) = $\frac{D_p}{P_P}=\frac{6}{57}=0.1053$ = 10.53%

$r_p$ = 10.53%

Cost of common stock ( $r_e$ ) = $\frac{D_1}{P_0} +g=\frac{4.75}{39} +0.04=0.1618$

$r_e$ = 16.18%

b)

$WACC=w_dr_d(1-T)+w_er_e+w_pr_p\\WACC=0.15*0.09(1-0.4)+0.75*0.1618+0.1*0.1053=0.14$

WACC = 14%

c) Only projects with expected returns that exceed WACC will be accepted. Therefore only project 1 and project 2 would be accepted

4 0

3 years ago

The allowance for doubtful accounts currently has a debit balance of $200. The company's management estimates that 2.5% of net c

lidiya [134]

Answer:

Bad debt expense (w/o allowance) = $2,875

Bad debt expense ( with allowance) = $2,675.

Explanation:

According to the scenario, the given data are as follows:

Net credit sales = $115,000

Uncollectible percentage = 2.5%

So, we can calculate the bad debt expense without Allowance for doubtful accounts by using following method:

Bad debt expense ( W/o allowance) = $115,000 × 2.5%

= $2,875

After Allowance for doubtful expense

Bad debt expense = $2,875 - $200

= $2,675

4 0

3 years ago

A futures contract on a 30 day Eurodollar time deposit is currently selling at an IMM index of 95.75 percent. The IMM index on a

kolezko [41]

Answer:

Basis risk for the future contract is 0.65%

Explanation:

Basis risk is the difference in spot price and future price of an hedged asset. It is the difference between the price price of an hedged asset and price of the asset serving as the hedge.

Basis risk = Futures price of contract − Spot price of hedged asset

Basis Risk = Future IMM index - Spot IMM index

Basis risk = 95.75% - 95.10%

Basis risk = 0.65%

5 0

3 years ago

A stock produced returns of 14 percent, 17percent, and -1 percent over three of the past four years, respectively. The arithmeti

mariarad [96]

Answer:

11.23%

Explanation:

Arithmetic return = Total return/Total time period

6% = (14% + 17% - 1% + x%) / 4

(6%*4) =30% + x

24% = 30% + x

x = (24% - 30%)

x = -6%

For the standard deviation, we need to use stdev.s function in Ms Excel

Standard deviation = stdev.s (14%,17%,-1%,-6%)

Standard deviation = 0.112249722

Standard deviation = 11.23%

So, the standard deviation of the stock's returns for the four-year period is 11.23%.

3 0

3 years ago