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vichka [17]
2 years ago
5

The cost of capital of a company that uses 45 percent debt that has an after-tax cost of debt of 10 percent and 55 percent equit

y that has a cost of 15 percent is:_______.
Business
1 answer:
zimovet [89]2 years ago
4 0

Answer:

12.75 %

Explanation:

Cost of Capital is calculated on a Weighted Average basis. This is because there is a Pooling of Funds when it comes to financing projects. So Cost of Capital is the Return that is Required by providers of Long Term source of finance.

Cost of Capital = E/V × Ke + D/V × Kd

Where,

E/V = Market Weight of Equity

      = 0.55

Ke = Cost of Equity

    = 15%

D/E = Market Weight of Debt

      = 0.45

Kd = Cost of Debt

     = 10%

Therefore,

Cost of Capital = 0.55 × 15% +  0.45 × 10%

                         = 12.75 %

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John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the sto
Marina CMI [18]

Answer:

Explanation:

Calculate maximum that should pay:

Compute present value of cash flows from the store, year 1 to 5 :

Annual cash flows are $70,000

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 5

Present value of cash flows generated during 1 to 5 years =

= $287,013.82

Compute present value of cash flows from the store for years 6 to 10

Annual cash flows are $70,000

Desired rate of return on investment for 6 to 10 years is 10%

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 5

Present value of cash flows generated during 6 to 10 years = annual cash flows x PVIFA (10%,5) x PVIF (7%,5)

= $70,000 x 3.79079 x 0.7130 = $189,198.33

Compute present value of cash flows from the store for years 11 o 20

Annual cash flows are $70,000

Desired rate of return on investment for 11 to 20 years is 12%

Desired rate of return on investment for 6 to 10 years is 10%

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 10

Present value of cash flows generated during 11 to 20 years = [annual cash flows x PVIFA (12%,10)] x PVIF (10%,5) x PVIF (7%,5)

= $70,000 x 5.65022 x 0.62092 x 0.7130  = $175,100.98

Calculate present value of estimated sale amount to be received for sale of store

Present value of estimted sale amount to be received = [Estimated sale amount x PVIF (12%,10)] x PVIF (10%,5) x PVIF (7%,5)

=$400,000 x 0.32197 x 0.62092 x 0.7130=

=$57,016.50

Calculate total maximum amount that should be paid

Particulars Amount ($)

Present value of cash flows during 1 to 5 years         $287,013.82

Present value of cash flows during 6 to 10 years $189,198.33

Present value of cash flows during 11 to 20 years $175,100.98

Present value of estimated sale value                  $57,016.50

Maximum amount that C should pay to JD for store $708,329.63

Therefore, Maximum amount that should be paid $708,329.63

4 0
3 years ago
Gross pay minus deductions is known as take home pay.<br><br> True<br> False
IceJOKER [234]
Gross pay minus deductions<span>. Also </span>called take-home pay<span>. A special checking account used to </span>pay<span> a company's employees. A manual or computerized schedule prepared for each payroll period listing the earnings, </span>deductions<span>, and net </span>pay<span> for each employee.

Hopes this information helps

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6 0
3 years ago
HELP ME PLSSS SOMEONE HELPP ILL GIVE BRAINLIEST
SIZIF [17.4K]

Answer:

$7,875

Explanation:

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3 0
3 years ago
59. What is a contingency? a. An existing situation where certainty exists as to a gain or loss that will be resolved when one o
Vera_Pavlovna [14]

Answer:

Correct option is D.

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6 0
3 years ago
What happens when the Federal reserve buys a treasury bond
alukav5142 [94]

Answer:

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7 0
3 years ago
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