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mylen [45]
3 years ago
6

Burnham Brothers, Inc. has no retained earnings since it has always paid out all of its earnings as dividends This same situatio

n is expected to persist in the future. The company uses CAPM to calculate its cost of equity and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would reduce its WACC?
a. The flotation costs associated with issuing new common stock increase.
b. The company's beta increases.
c. Expected inflation increases.
d. The market risk premium declines.
Business
1 answer:
RUDIKE [14]3 years ago
6 0

Answer: d. The market risk premium declines.

Explanation:

The Weighted Average Cost of Capital (WACC) takes into account the cost of equity and debt which means that if either of these costs increase, the WACC will increase as well and if any decrease, WACC will follow suit.

Market risk premium is used in the calculation of the cost of equity when using CAPM in the following manner:

= Risk free rate + Beta * Market risk premium

As can be inferred from the above formula, if the market risk premium declines, a lower cost of equity will result which would then reduce the WACC as well.

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If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent
maria [59]

Answer:

c

Explanation:

Required reserves is the percentage of deposits required of banks to keep as reserves by the central bank

Required reserves = reserve requirement x deposits

0.2 x $100,000 = $20,000

Excess reserves is the difference between reserves and required reserves

Required reserves = 0.15 x 600 = 90

Excess reserves = 600 - 90 = 510

8 0
3 years ago
Which of the following would violate the efficient market hypothesis?
jeyben [28]

The efficient market theory would be violated if investors earned extraordinary returns months after a company announced unexpected profits. Thus, the correct option is (d.) Investors earn abnormal returns months after a firm announces surprise earnings.

<h3>What exactly is the hypothesis of an efficient market?</h3>

The efficient-market hypothesis is a financial economics concept that asserts asset prices represent all available information. Because market prices should only react to fresh information, it is impossible to continually "beat the market" on a risk-adjusted basis.

Because the EMH is expressed in terms of risk adjustment, it can only offer testable predictions when combined with a specific risk model. As a result, financial economics research has focused on market anomalies, or departures from specified risk models, since at least the 1990s.

To learn more about Efficient-market hypothesis, click

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4 0
1 year ago
Example of how a marketer might use specific customer and product information from a database to plan future marketing activitie
Viefleur [7K]

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did that help you?

4 0
3 years ago
Pina Corporation entered into an operating lease agreement to lease equipment from Badger, Inc. on January 1, 2017. The lease ca
posledela

Answer:

= $80,273

Explanation:

Value of the right of use asset = Value of lease liability - cash incentive received + costs incurred for lease

                  = $82,773 -$ 6,000 + $3,000 + $500

                     =$80,273

4 0
3 years ago
The large majority of legal issues associated with technology-specific legislation involve ________.
Olin [163]
I would like to help. Any choices?
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