Answer:
Using the current capital structure
Ke = Rf + β(Risk premium)
Ke = 5 + 1.60(6)
Ke = 5 + 9.60
Ke = 14.60
Weighted cost of equity
= 14.60(20/100)
= 2.92%
Using the new debt-equity ratio
Ke = 5 + 1.60(6)
Ke = 5 + 9.6
Ke = 14.60%
Weighted cost of equity
Ke = 14.60(60/100)
Ke = 8.76%
Difference in cost of equity
= 2.92% - 8.76%
= -5.8%
Explanation:
There is need to calculate the cost of equity based on capital asset pricing model where Rf represents risk-free rate, Rp denotes risk-premium and β refers to beta. Then, we will calculate the weighted cost of equity by multiplying cost of equity by the proportion of equity in the capital structure. We will also calculate the new weighted cost of equity by multiplying the cost of equity the new proportion of equity in the capital structure. Finally, we will deduct the new weighted cost of equity from the old weighted cost of equity.
Answer:
Working capital is essential to a company's fundamental health and operational success. It helps in maintaining a solid balance between growth, profitability and liquidity.
Net working capital is the difference between a business/ company's current assets and current liabilities or debts.
Current assets are cash, accounts receivable and inventories of raw materials and finished goods
Current liabilities are accounts payable.
Explanation:
Working capital helps to maintain smooth operations and help improve a company's earnings and profitability and it includes:
1. Inventory management
2. Management of accounts receivable and account payable.
When valuing a stock using the constant-growth model, D1 represents the next expected annual dividend. The constant-growth model is formally known as the Gordon Growth Model. This model shows the intrinsic value of stock based on dividends in the future if they are growing at a constant rate. Instrinsic value is the value of something based on anaylsis without accounting for the market value.
To solve:
Percentage of preferred stock outstanding = 5.5%
Price per share = $48
Price of preferred stock = (.055 x $100)/$48
Price of preferred stock = .1146
To turn into a percentage:
% = (.1146)(100)
11.46%
Materials that become independent components of the finished product and whose cost can be easily and conveniently traced to the finished products are <u>direct materials.</u>
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<h3>What are direct materials?</h3>
Those components pass into a manufactured product are called as Direct materials. Direct materials cost refers to the cost of direct materials which may be without problems recognized with the unit of production.
For example, the value of glass is an immediate substance cost in light bulb manufacturing.
Hence, Materials that become independent components of the finished product and whose cost can be easily and conveniently traced to the finished products are <u>direct materials.</u>
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learn more about direct materials:
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