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
Veseljchak [2.6K]
3 years ago
9

Sommer, Inc., is considering a project that will result in initial aftertax cash savings of $1.84 million at the end of the firs

t year, and these savings will grow at a rate of 1 percent per year indefinitely. The firm has a target debt-equity ratio of .75, a cost of equity of 12.4 percent, and an aftertax cost of debt of 5.2 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.
What is the maximum initial cost the company would be willing to pay for the project?
Business
1 answer:
Dafna1 [17]3 years ago
3 0

Answer:

$19,700,214.13

Explanation:

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

WACC = (Debt Equity Ratio ÷ 1 + Debt Equity Ratio) × After Tax Cost of Debt + (1 ÷ Debt Equity Ratio) × Cost of Equity

=(.75 ÷ 1+.75) × 0.052+(1 ÷ 1.75) × 0.124

= (.75 ÷ 1.75) × 0.052 + 0.57 × 0.124

= 0.43 × 0.052 + 0.071

= 0.0934 = 9.34%

Project Discount Rate = WACC + Adjustment Factor Rate

= 9.34% + 3% = 12.34%

If NPV is positive, we would accept the project:-

PV of Future Cash Flow = Initial After Tax Cash Savings ÷ (Project Discount Rate - Adjustment Factor Rate)

= $1,840,000 ÷ (0.1234-0.03)

= $1,840,000 ÷ 0.0934

= $19,700,214.13

According to the analysis, the project should only taken when the NPA is less than $19,700,214.13.

You might be interested in
During the middle years of last decade, the exchange rate of the U.S. dollar has declined against the currencies of its major tr
Aleks04 [339]

Answer:

Because there are other factors that influence the weakening or strengthening of the dollar, not just the dollar exchange rate in relation to the exchange rates of other countries' currencies.

Explanation:

Although the United States has registered increases in the trade deficit, that is, when the country imports more goods and services from abroad than it exports, there are other factors that determine whether the country's currency is valued or not. In the case of the dollar, its value has not decreased despite the fall in the exchange rate of the dollar in relation to the currencies of its main trading partners due to the fact that the dollar is the main reserve currency in the world, which means that the dollar is the fashion of commercial transaction in the world, therefore its value is not lost in relation to other currencies, since several important transactions in the world such as gold and oil commodities are traded in dollars.

There is also the fact that the US attracts a lot of international investment for US Treasury bills, which helps to strengthen the dollar.

6 0
3 years ago
What is the main activity of a producer cooperative?
fomenos
I think it's C

I hope it helped you!
5 0
3 years ago
A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?
In-s [12.5K]

Answer: d)Firms have to pay more to attract inputs, as these inputs have to share the risk.

Explanation: When the market system tries to put restriction on the business risk to owner and other investors , the firms have to give more payment to attract them to market business.

The chances of risk have have to be shared by both the parties so the owners or investors are going to indulge in the business when they gain some benefit e.g.-more payment.

Other options are incorrect because entrepreneurship will not be encouraged through this process. Incomes will not be distributed equally and neither the prudent risk management will be aimed.Thus, the correct option is option(d).

7 0
3 years ago
Because Brianna loves Chinese food, she was eager to check out a new Chinese restaurant. The restaurant had undertaken a large-s
Lana71 [14]

The Chinese restaurant failed to realize the importance of "word-of-mouth marketing."

<h3>What is word-of-mouth marketing?</h3>

Whenever a consumer's interest inside a company's service or product is reflected in their regular conversations, this is referred to as word-of-mouth marketing (also WOM marketing). Basically, it is free promotion brought on by consumer experiences, which are typically above and beyond their expectations.

Some key features regarding word-of-mouth marketing are-

  • Word-of-mouth marketing occurs when customers recommend a business's goods or services to their friends, relatives, and other people they value highly.
  • WOM marketing is among the most effective kinds of advertising since 88% of consumers prefer suggestions from their friends than those in traditional media.
  • By exceeding customer expectations with a product, delivering first-rate customer service, and providing consumers with insider knowledge, businesses can promote WOM marketing.
  • The finest word-of-mouth marketing methods, according to Word of Mouth Marketing Association (WOMMA), are sincere, credible, sociable, repeatable, measurable, and respectful.

To know more about the word-of-mouth marketing, here

brainly.com/question/15472521

#SPJ4

6 0
1 year ago
This​ year, Druehl,​ Inc., will produce 60 comma 000 hot water heaters at its plant in​ Delaware, in order to meet expected glob
wolverine [178]

Answer:

The answer is: 2500 employees

Explanation:

Giving the following information we need to calculate the number of employees:

Total production= 60000

Hours per worker= 160 hours

labor productivity= 0,15

It takes to a single employee= 1/0,15= 6,67 hours to make a heater.

Each worker produces=160/6,67=24 heaters a year.

Now we can calculate the number of workers:

60000/24= 2500 employees

6 0
4 years ago
Other questions:
  • On April 30, 2017, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, w
    8·1 answer
  • Which of the following cannot be shown on a production possibilities graph?
    10·2 answers
  • Can someone please help me out
    8·1 answer
  • A(n) _____ is a general belief about a person or group of people that may not be true.
    11·2 answers
  • Firm X is producing 1000 units, selling them at $15 each. Variable costs are $3 per unit and the firm is making an accounting pr
    10·1 answer
  • A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market. The market price
    13·1 answer
  • Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hour
    14·1 answer
  • % interest compounded annually until Bob retires on his 65th birthday. How much is the IRA worth when Bob retires
    5·1 answer
  • Wade Company estimates that it will produce 6,000 units of product IOA during the current month. Budgeted variable manufacturing
    6·1 answer
  • A student is writing a research paper about the poetry of the Harlem Renaissance. Which style guidelines will the student most l
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!