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ipn [44]
4 years ago
11

Thinking Hat would like to start a new project which will require $25 million in the initial cost. The company is planning to ra

ise this amount of money by selling new corporate bonds. It will generate no internal equity for the foreseeable future. Thinking Hat has a target capital structure of 55 percent common stock, 10 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 10 percent, for new preferred stock, 7 percent, and for new debt, 3 percent. What is the true required initial investment that the company should use in its valuation of the project
Business
1 answer:
MissTica4 years ago
4 0

Answer :

True required initial investment = $26,954,178

Explanation :

As per the data given in the question,  we need to do following calculations

Weighted average flotation cost = ( % flotation cost of debt × weight of debt) + (% flotation cost of preferred equity ×  weight of preferred equity) + (% flotation cost of common equity × weight of common equity)

= (3% ×  35%) + (7% × 10%) + (10% × 55%)

= 0.0725

=7.25%

It means out of total capital which is raised 7.25%, would be the flotation cost.

Let total capital raised be X

So X  ×  (1 - 7.25%) = $25 million

X = $25 million ÷ (1- 7.25%)

X = $26,954,178

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Naddika [18.5K]

Answer:

BOL can be viewed as the authoritative record that is being given to a shipment organization by the transporter that incorporates the different insights regarding the item. The fundamental purpose behind the BOL to be gathered at the entryway ports is that these BOL are gotten at the port first as this is where the items are gotten in the nation and from that point these items are sent to inland RDCs. The items need to pay the traditions obligations and pass the various customs.

8 0
4 years ago
If the U.K. exports 14 billion British Pounds of​ products, and imports 10 billion British pounds of​ products, its trade balanc
rodikova [14]

Answer:

D) 4 billion British pounds

Explanation:

Trade balance or balance of trade can be defined as the difference between a country's export and import at a particular period of time.

It could be a deficit or surplus.

Deficit trade balance refers to when the export of a country is less than it's import. This means more products are imported that exported.

Surplus trade balance refers to when export of a country is more than the import.

Import is the bringing in of goods from a foreign country. This means a particular country purchase goods from another country.

Export is the sending out of goods to a foreign country. That is the selling of goods to another country.

Trade balance= Export- Import

=14 billion British pounds- 10 billion British pounds

=4 billion British pounds

The trade balance that occurs here is surplus trade balance where export is more than import.

5 0
3 years ago
Two 20-year corporate bonds are issued at par, with stated interest rates of 10%. One issue is puttable at par in 5 years, while
True [87]

Answer:

b. The bond puttable in 10 years will depreciate more than the bond puttable in 5 years

Explanation:

Data provided in the question

20 -year corporate bond i.e issued at par at 10%

One issue is for 5 years

other issue is for 10 years

Now if the interest rate rise by 200 basis points

So,

Based on the above information

If a bond is issued at a future date, any price drop due to higher interest rates will be eliminated as the holder is able to return the bond to the issuer earlier

Hence, the option B is correct

8 0
3 years ago
Angelo was all set to start his new business. Although he did not have as much cash as he would have liked, he figured that once
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Answer:

The answer is undercapitalization

Explanation:

It is evident that the business is undercapitalized. Undercapitalization is a situation when a company/firm does not have enough or the needed funds to run the business operations or pay his creditors.

Angelo is undercapitalized because her sales are not generating the needed cash flows coupled with her inadequate capital. So she needs to raise enough capital or develop new strategy to increase her sales.

4 0
3 years ago
During the mid-1980s, we observed a significant reduction in oil prices. In the United States, we would expect that this reducti
docker41 [41]

Answer:

<h2>A reduction in the oil prices in United States would lead to a a larger reduction in the GDP deflator than the CPI.Hence,the correct answer in this case is option D) or a larger reduction in the GDP deflator compared to the CPI.</h2>

Explanation:

In Macroeconomics GDP deflator and Consumer Price Index(CPI) both indicates the fluctuations or variations in the overall price level of all the goods and services in the economy.However,CPI only includes the prices of goods and services that are finally consumed or purchased by the consumers or buyers in the economy and excludes the goods and services involved in any commercial,business to business or government exchange or transaction.On the other hand,GDP deflator estimates the price level of all the goods and services produced by the economy.Therefore,GDP deflator is a relatively comprehensive and broader price indicator in the economy compared to the CPI and is inclusive of all types of commercial transactions between all entities,unlike CPI.Now,in this context,oil is used both for final consumption by consumers or buyers as well as for commercial purposes or intermediate good by firms and companies for production of final goods and services.In many common instances,oil is heavily traded in the international market and is a major export commodity for most of the oil producing countries.Therefore,CPI,in this case,would only register the reduction in price of oil that has been used only for final consumption by the consumers or buyers in the economy.In contrast,GDP deflator will account for the overall reduction in price of oil that is produced by US in general which is used for all commercial,government or administrative and final consumption.Consequently, oil price reduction in US will cause a relatively higher reduction in its GDP deflator than the CPI.

5 0
3 years ago
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