In the first quarter of operation, the Blending Department of ChemUSA produced 50,000 barrels of Compound X and left 20,000 barr
1 answer:
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Answer:
= 0.3274 or, 32.74%
Explanation:
We know,
Capital Structure = Debt + Common Stock + Preferred stock
Given,
Common Stock = 4,000,000 shares
Share price = $21
Total common stock = No. of shares x share price
Total common stock = 4,000,000 shares × $21 = $84,000,000
Preferred Stock = 3,000,000 shares
Share price = $10
Total preferred stock = $10 x 3,000,000 shares
Total preferred stock = $30,000,000
Debt rate = 111% = 1.11
Debt = 50,000 bonds x $1000 par x 1.11
Debt = $55,500,000
Total Capital = $(55,500,000 + 84,000,000 + 30,000,000)
Total capital structure = $169,500,000
The weight for debt in the computation of OMG's WACC
=
=
= 0.3274
or, 32.74%
Answer: $329.75
Explanation:
The one year subscription is $40 per year. It is estimated that the average age of current subscribers is 38 and they will leave on average to 78. This means that they will leave for,
= 78 - 38
= 40 years
Evans Ltd average interest rate on long-term debt is 12% so this means that we can use that 12% as a discount rate for the cash-flow expected.
I have attached a Present Value Interest Factor of an Annuity table to this question. It helps calculate annuities faster.
The above can be treated as an annuity because the $40 is constant every year.
The present value of the $40 over 40 years can be calculated by,
= $40 * present value Interest Factor of an Annuity for 40 years at 12% (look at the table for where 40 years on the y axis intersects with 12% on the x axis)
= $40 * 8.2438 (this is the figure when it is not rounded off to 3 dp)
= $329.752
= $329.75
This shows that the lifetime flat fee of $480 is more profitable for Evans Ltd as opposed to the yearly subscription. They should therefore try to sell more of the lifetime contract with the flat fee.
