1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
olganol [36]
2 years ago
5

Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $2.3 million at the end of the first

year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .60, a cost of equity of 10 percent, and an aftertax cost of debt of 4.6 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 3 percent to the cost of capital for such risky projects.
Required:
What is the maximum inital cost the company would be willing to pay for the project?
Business
1 answer:
Anuta_ua [19.1K]2 years ago
6 0

Answer:

the maximum initial cost is 25.62674095 million

Explanation:

The computation of the maximum initial cost of the company is shown below:

But before that the discount rate is

= 0.6 ÷ 1.6 × 4.6% + 1 ÷ 1.6 × 10% + 3%

= 10.9750%

Now Maximum initial cost is

=2.3 ÷ (10.975% - 2%)

= 25.62674095 million

Hence, the maximum initial cost is 25.62674095 million

You might be interested in
New Business is just being formed by 10 investors, each of whom will own 10% of the business. The firm is expected to earn $500,
Triss [41]

Answer:

additional income is $11050  if the business is organized as a partnership rather than as a corporation

Explanation:

given data

investors = 10

own = 10%

earn =  $500000

corporate tax rate = 34%

personal tax rate = 35 %

to find out

How much additional spendable income

solution

we find here first income if formed as corporation in hand  that is

income if formed as corporation = earn × own ( 1 -  corporate tax ) × ( 1 - personal tax )

income if formed as corporation = 500000 × 10% ( 1 - 34% ) × ( 1 - 35% )

income if formed as corporation =$21450

and

income will be taxable if form partnership that is

income if formed partnership = earn × own ( 1 - personal tax )

put here value

income if formed partnership = 500000 × 10% ( 1 - 35% )

income if formed partnership = $32500

so

additional income is $32500 - $21450

additional income is $11050

4 0
2 years ago
TRUE/FALSE?
horrorfan [7]

Answer:

true, defiantily true

Explanation:

if this helps can i have brainliest when u get the chance...thnx

5 0
2 years ago
Read 2 more answers
After purchasing a fancy cut diamond ring for his wife, jason feels dissatisfied with his purchase as he feels that the ring was
ivanzaharov [21]

Buyer's remorse.

Buyer's remorse is a feeling of regret after making a purchase, especially for something expensive or extravagant.

3 0
2 years ago
Consider the following items: • Land • Accounts Receivable • Notes Payable (due in three years) • Accounts Payable • Retained Ea
sashaice [31]

Answer:

Land, Building and equipment

Explanation:

As we know that

Total assets include current assets, fixed assets and intangible assets Current assets involve cash, stock, account receivables, etc. Fixed assets comprise plant & machinery, property, equipment, furniture & fittings, etc.

So according to the given situation, the land, building and the equipment is considered generally as a long term asset

4 0
3 years ago
What is the price of money
OverLord2011 [107]

Answer:

The price of money is a function of the prices of all other goods and services in the economy. Many economists proxy the price of money using the inverse of an aggregated price index. All else being equal, a higher price level implies a lower price of money; a lower price level implies a higher price of money

5 0
3 years ago
Read 2 more answers
Other questions:
  • Stock A has a beta of 1.7 and has the same reward-to-risk ratio as stock B. Stock B has a beta of .8 and an expected return of 1
    13·1 answer
  • Manny hired his brother’s firm to provide accounting services to his business. During the current year, Manny paid his brother’s
    15·1 answer
  • A firm has zero debt in its capital structure. Its overall cost of capital is 8%. The firm is considering a new capital structur
    9·2 answers
  • A company had inventory on November 1 of 5 units at a cost of $19 each. On November 2, they purchased 10 units at $21 each. On N
    14·1 answer
  • Delish Foods sells jars of special spices used in Italian cooking. The variable cost is $2 per unit. Fixed costs are $9,000,000
    10·1 answer
  • Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goe
    12·1 answer
  • A firm has fixed operating costs of $253,750, a sales price per unit of $100, and a variable cost per unit of $65. The firm's op
    5·1 answer
  • A coupon bond that pays interest of $70 annually has a par value of $1,000, matures in 5 years, and is selling today at a $77.75
    11·1 answer
  • Asorting tool is most likely used to
    15·1 answer
  • Should Monics and Ami use a loan or their personal funds to finance their business startup? What other alternatives might they c
    12·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!