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Masteriza [31]
3 years ago
15

Suppose that Rearden Metal currently has no debt and has an equity cost of capital of 12%. Rearden is considering borrowing fund

s at a cost of 6% and using these funds to repurchase existing shares of stock. Assume perfect capital markets. If Taggart borrows until they achieved a debt -to-equity ratio of 50%, then Rearden's levered cost of equity would be closest to:A) 10.0%B) 12.0%C) 15.0%D) 16.0%
Business
1 answer:
Alexxandr [17]3 years ago
4 0

Answer:

Option (C) is correct.

Explanation:

We have to use MM proposition that cost of equity will change itself in such a manner so that it can take care of its debt.

Cost of equity:

= WACC of all equity firm + (WACC of all equity - Cost of debt ) × (Debt -to-equity ratio)

At the beginning, when there was no debt,

WACC = cost of equity = 12 %

Levered cost of equity:

= 12% + ( 12% - 6%) × 0.5

= 15%

Therefore, Rearden's levered cost of equity would be closest to 15%.

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What is an asset in accounting <br>​
Goryan [66]

Answer:

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Explanation:

5 0
2 years ago
8. Masterson Company's budgeted production calls for 56,000 liters in April and 52,000 liters in May of a key raw material that
Hitman42 [59]

Answer:

54,600

Explanation:

According to the scenario, computation of the given data are as follow:-

Particular                          Quantity of Raw Material (liters)

Required Raw Material                                   56,000

Add-Raw Material’s ending stock (52,000 × 35%) 18,200

Less-Raw Material’s opening stock(56,000 × 35%) 19,600

Budgeted material need for April                                 54,600

We simply applied the above format for determining the budgeted material needed for the month of April

5 0
3 years ago
When the risks of the individual components of a project’s cash flows are different, an acceptable procedure to evaluate these c
maxonik [38]
The answer would be the first one for sure
3 0
3 years ago
The balance sheet of a corporation reports ______. only the debts of the business and its owners only the results of the busines
grandymaker [24]

Answer:

only the results of the business' activities

Explanation:

 balance sheet is among the three main financial statements prepared by a corporation. It reports the financial positions of the business by showing the value of assets, liabilities, and the shareholder's equity at any point in time. Therefore, a balance sheet shows the net worth of the corporation.

The preparation of the balance sheet follows the accounting equation of assets equals liabilities plus shareholder equity. On one side, the balance sheet reports the assets and liabilities and equity on the other.  In other words, the balance sheets indicate how the assets of a business are financed. It does not report on the personal activities of business owners.

6 0
3 years ago
Sterling Morrow, a fashion brand known for casual dresses, is launching a new product line: Carry Tu, a line of women’s fashion
Rina8888 [55]

Answer with Explanation:

If the company desires Carry Tu product line to breakeven within first 8 months then my recommendation would be to target working class women. This is because working class women spend most of their earnings on fashion bags, clothing, shoes, satchel, makeup, overnight bags, cell phones, jewelry, etc. So if we are targeting a customer who has higher purchasing power then it is more likely that our quality product will breakeven very quickly. A working class women roughly owns 2-4 bags which means their is huge market for Carry Tu, especially in the case of working class women. Other items like overnight bags, satchel, card holder key-chains, laptop bags, etc will be adding value due to growing demand of quality products and shopping habits of working class women.

Satchel is usually used by both students and working class women, now again it will be one of the most value adding product among the Carry Tu product line.

Laptops bags are rarely used as the companies that sell their products has a laptop with bag in a package offering. So it will be less value adding item. Likewise card-holder key-chains are also rarely used by students and working class women.

Overall assessment shows that the best customer segment that the company must focus should be working class women.

<u>Pricing Strategy for Carry Tu Line:</u>

The pricing strategy of the company must be increasing sales oriented which would increase the demand of the product if the purchasing power of the customer is not much high. If the product is differentiated and quality oriented and also that the customer's purchasing power is high enough then the company must charge higher cost to reflect its brand and quality product.

The satchel is widely used by the students and working class women who work in small organizations, hence the company must follow penetration pricing strategy. This is the strategy that will help in covering the fixed cost by earning small contribution on each product. It will also increase the sales which means the total contribution will be enough to cover fixed cost of the organization. This pricing strategy is mostly followed to increase the market share and as in the case of Carry Tu, it is a new entrant in the market, hence pricing low would be helpful in developing customer relation and covering the fixed cost so that the company breakeven in first 8 months of operation.

Overnight bag and laptop bags are mostly used by the working class women who prefer differentiated and quality products. Which means that the product will be differentiated and quality product to compete with Grazzi. The company must follow Competitive pricing strategy so that the customer perceives similar value that Grazzi is offering in the market.

Card-holder key-chains are rarely purchased by working class hence it will also follow penetration pricing strategy to increase its sales and increase the total contribution earned on its sales.

The pricing strategy are based on the market condition of Carry Tu as it is a new entrant in the market and is based on Grazzi brand valued by customers.

7 0
2 years ago
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