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Tanya [424]
3 years ago
15

A firm has a market value of equity of $50,000. It borrows $12,500 at 7%. If the unlevered cost of equity is 18%, what is the fi

rm's cost of equity capital
Business
1 answer:
Mariulka [41]3 years ago
8 0

Answer: 21.63%

Explanation:

The firm's cost of equity capital will be calculated thus:

Market value of assets = $50000

Debt = $12500

Cost of debt = 7%

Unlevered cost of equity = 18%

Then, we'll calculate equity which will be calculated as:

= Market value of assets - Debt

= $50000 - $12500

= $37500

Then, the cost of equity capital will be:

= Unlevered cost of equity + [(Debt/equity) x (Unlevered cost of equity - Cost of debt)]

= 18% + [($12500/$37500) x (18% - 7%)]

= 18% + [0.33 x 11%]

= 18% + 3.63%

= 21.63%

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2 years ago
Costco and other big box price clubs charge a membership fee on top of the price of goods sold to members. This is an example of
Agata [3.3K]

Answer:  Service Charge

Explanation: a service charge goes toward the day to day running costs of a company, used to cover things like building costs, insurance, employee compensation. It is how companies like Costco are able to pass along reduced price products to members.

4 0
3 years ago
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $830 million on January 1, 2021. The bonds sold
Semmy [17]

Answer:

discount on bonds payable 18,383,020.48 debit

other comprehensive income 18,383,020.48 credit

--to adjust Bonds at 12/31/2021 market value --

other comprehensive income  4.739.000‬ debit

    discount on bonds payable   4.739.000‬ credit

--to adjust Bonds at 12/31/2022 market value --

Explanation:

We solve for the book value at year-end using effective rate

<u>First year:</u>

<u>First payment</u>

830,000,000 x 5.5% = 45,650,000

767,557,868  x 6.0% = 46,053,472.08

Amortization              403,472.08

<u>Second Payment</u>

830,000,000 x 5.5% =                         45,650,000

(767,557,868 + 403,472.08)  x 6.0% = 46,077,680.4

Amortization               427680.4

Carrying value at year-end

767,557,868 + 403,472.08 + 427,680.40 = 768,389,020.48

We need to recognize a deferred gain for the difference between these and the 750,000,000 market value at December 31th

which is $ 18,383,020.48 as these as not been realized it will be part of other comprehensive income

We will increase the discount to adjust the bonds payable account net balance.

<u>Second year:</u>

We repeat the process

<em>First Payment:</em>

830,000,000 x 5.5% = 45,650,000

Interest expense 750,000,000 x 6% = 45,000,000

Amortization  650000

Carrying value 750,000,000 + 650,000 = 750,650,000

<em>Second Payment:</em>

830,000,000 x 5.5% = 45,650,000

750,650,000 x 6% = 45,039,000

Amortization 611000

Carrying Value 750,650,000 + 611,000 = 751,261,000

Wer now compare this with the 756,000,000

as now the debt of the company has increased we are going to decrease the discounttand recognize a deferred loss through other comprehensive income as it wasn't realized

756,000,000 - 751,261,000 = 4.739.000‬

7 0
3 years ago
What is 5-6-(-7)+-10-21
ladessa [460]

5-6+7-10-21

-1+7-31

25

5 0
3 years ago
Read 2 more answers
।<br>चालू खाता तया pooजी खाता me antar​
erastovalidia [21]

\Large\color {red} {☘Answer:☘}

<h3>Wut???</h3>
5 0
2 years ago
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