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viva [34]
3 years ago
13

LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 perce

nt coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at the same cost of its current bonds but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 0.94, the risk-free rate is 3.72 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent.
Required:
What is the WACC?
Business
1 answer:
11111nata11111 [884]3 years ago
3 0

Answer:

9.72%

Explanation:

Maturity = 34

Par-value = -1000

Coupon rate = 6%

Coupon PMT = -60

Value of bond = 1152

Semi-annual Yield = Rate(34, -60, 1162, -1000, 0, 0)

Semi-annual Yield = 5.00%

Annual Yield = 10%

Tax rate = 40%

After tax cost of debt = 10*(1-0.4)= 6%: Add: Flotation cost (5%) = 11%

Cost of preferred stock = Dividend/Price = 12/120 = 10%

Cost of equity = Risk free rate + Beta*Market risk premium

Cost of equity = 3.72 + 0.94*6

Cost of equity = 9.36%

Particulars  Value per    No of        Market   Weight  Cost of     Product

                    security    securities     value                    security

Bonds             1162       100000     116200000   0.15784   11          1.736213

P. stock           120        1000000  120000000  0.16299   10         1.62999

Equity              100        5000000 <u>500000000</u> <u>0.6792</u>   9.36       <u>6.35697</u>

                                                       736200000     1                         <u>9.72317</u>

So, the WACC of the firm is 9.72%

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n autarky, suppose that equilibrium sugar price is $100 per ton in Birdonia, a small agricultural nation. Now, suppose Birdonia
Rainbow [258]

Answer:

the domestic price of sugar will increase to $125.

Explanation:

Since the world price of sugar is higher than the domestic price, domestic producers of sugar will export their products in order to earn a higher profit. That will eventually lead to an increase in the equilibrium price from $100 (former equilibrium price) to a higher price equal to the world price ($125).

6 0
3 years ago
US Apparel (USA) manufactures plain white and solid-colored T-shirts. Budgeted inputs include the following
Artemon [7]

Answer:

A) USA will not be better off switching to the new dye since the cost is greater than the Fine

B)  $118076

C)  The reduction in material/fabric cost can be achieved by the reduction in material wastage and in the use of quality materials

while the reduction in labor cost can be achieved by Hiring well trained employees with the necessary skillset

Explanation:

<u>A) Determine If the USA be better off using the new dye </u>

Units of clothes to be dyed = 50,000

Difference in cost = [ 4 ( 1.25 - 0.5 ) ] = 4 * 0.75 = $3

Total cost of using the new dye = 50000 * $3 = $150,000

Fine = $130,000

hence USA will not be better off switching to the new dye since the cost is greater than the Fine

<u>B) Determine by how much overall cost will be reduced at the end of 12 months using Kaizen costing </u>

<em>condition : reduce fabric and labor cost by 1%</em>

Original Monthly Costs without the use of Kaizen Costing =( Total Units/Number of Months)*(Fabric Cost per Unit + Labor Cost per Unit)*Number of Months

= [( 10000 + 50000 )/12 ) * ( 6 + 4 ) ] *12

= [ 5000 * 10 ] *12  = $600,000

Applying kaizen costing

Given: Fabric cost per unit = $6 , Labor cost per unit = $4

          Total units of production = 10000 + 50000 = 60,000

Kaizen costing formula per month = [ (cost per unit * total units / 12 ) - ( 1% of cost per unit * total units / 12) ]

Total annual cost using Kaizen costing = $56807.61

difference in cost = $600,000 - $568076 = $31924

with the new dye and Kaizen costing the overall cost will be change by $118076  i.e. ($150,000 - $31924) = <em>$118076 </em>

C ) The reduction in material/fabric cost can be achieved by the reduction in material wastage and in the use of quality materials

while the reduction in labor cost can be achieved by Hiring well trained employees with the necessary skillset

5 0
3 years ago
The Nelson Company has $1,522,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $395,000
Pie

Answer:

$308,750

Explanation:

Current ratio = Current asset / Current liabilities

To get the short term debt increase, to the value of current assets and current liabilities, an amount must be added whereas the result must be 2.2

1,522,500 + y / 525,000 + y = 2.2

1,522,500 + y = 2.2 × (525,000 + y)

1,525,500 + y = 1,155,000 + 2.2y

1,525,500 - 1,155,000 = 2.2y - y

370,500 = 1.2y

y = 370,500 / 1.2

y = 308,750

It therefore means that the maximum amount that should be borrowed to purchase the inventory is $308,750

5 0
3 years ago
The ohio state studies and the leadership grid are associated with the ____ approach to leadership.
dsp73

The Ohio state studies and the leadership grid are associated with the behavioral approach to leadership.

<h3>What is meant by the behavioral approach?</h3>

Since human conduct is taught, it is possible to unlearn any behavior and replace it with another behavior. The observable and quantifiable characteristics of human behavior are the main focus of behaviorism. As a result, learnt behaviors can be undone when they become unacceptable.

Relationship behaviors aid followers in feeling at ease with one another, with themselves, and with their surroundings. The behavioral approach's main goal is to clarify how leaders mix these two types of actions to affect followers' efforts to accomplish a goal.

According to the behavior approach, all behaviors are acquired and are predicated on the same core precepts and outcomes.

These are linked to actions taken voluntarily by individuals and include environmental factors that are relevant to the action and are under the control of the individual.

To learn more about behavioral approach refer to:

brainly.com/question/15038015

#SPJ4

4 0
2 years ago
He is sincere change into Negative plssss​
soldier1979 [14.2K]

He is not sincere.

This is the negative form of the sentence.

3 0
3 years ago
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