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DerKrebs [107]
3 years ago
8

Barton Industries expects next year's annual dividend, D1, to be $2.00 and it expects dividends to grow at a constant rate g = 4

.2%. The firm's current common stock price, P0, is $20.00. If it needs to issue new common stock, the firm will encounter a 4.5% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.
Business
1 answer:
Gekata [30.6K]3 years ago
6 0

Answer: See explanation

Explanation:

The flotation cost adjustment that must be added to its cost of retained earnings will be calculated thus:

= Expected dividend / [Current price × (1 - Floatation cost)] + Expected growth rate

= 2.00/[20.00 × (1 - 4.5%)] + 4.2%

= 2.00 /[20.00 × (1 - 0.045)] + 0.042

= 2.00 / (20.00 × 0.955) + 0.042

= (2.00/19.10) + 0.042

= 0.104712 + 0.042

= 0.146712

New cost of equity = 14.67%

You didn't give the cost of equity calculated without the flotation adjustment. Let's assume that this is maybe 11%, the floatation on adjustment factor = 14.67% - 11% = 3.67%

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Kenny Electric Company's noncallable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9
murzikaleks [220]

Answer:

d. 5.08%

Explanation:

We have to first calculate the YTM of the bond, and then apply the tax shield.

To get the YTM we have to calculate the rate of return of an annuity of 46.25 for 20 years compounding semiannually at IRR rate and the present value of the face value redeem in 20 years.

C \times \frac{1-(1+r)^{-time} }{rate} +Face\:Value/(1+rate)^{time}= PV\\

46.25 \times \frac{1-(1+IRR/2)^{-20*2} }{rate} + 1000/(1+IRR)^{20}= 1075\\

IRR = 0.084656891 (it should be done using financial calculator or excel or a similar software program)

then we apply the shield tax to the IRR:

IRR x (1 - tax-rate) = Cost of debt

0.084656891 * ( 1 - 0.4) = 5.0794= 5.08

3 0
3 years ago
Management career skills include managing _____.
Svetllana [295]

Answer:

the correct answer is finances

3 0
3 years ago
Pine Corp. produces three products, and currently has a shortage of machine hours since one of its two machines is down. The sel
yulyashka [42]

Answer:

product B

Explanation:

The computation is shown below;

<u>Particulars           Product A          Product B             Product C </u>

Selling Price            $5.00                $3.00                  $5.00

Less: Variable cost per unit ($3.50)   ($2.00)               ($2.00)

Contribution per unit     $1.50               $1.00                $3.00

Machine hours per unit   0.75                 0.25                    1

Contribution per machine hour $2.00   $4.00            $3.00

                                         ($1.50 ÷ 0.75)  ($1.00 ÷ 0.25)   ($3.00 ÷ 1)

The product B should be produced as it has the highest contribution per machine hour

6 0
3 years ago
Coastal Bank uses activity-based costing to determine the cost of servicing customers. There are three activity pools: teller tr
rosijanka [135]

Answer:Allocated MOH= $16

Explanation:

Giving the following information:

teller transaction processing ($2.80 per teller transaction)

check processing ($0.25 per canceled check)

ATM transaction processing ($0.20 per ATM transaction).

<u>To allocate overhead, we need to use the following formula:</u>

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 2.8*4 + 0.25*12 + 0.2*9

Allocated MOH= $16

4 0
3 years ago
Problems and applications q6 darnell loves playing rock 'n' roll music at high volume. jacques loves opera and hates rock 'n' ro
mafiozo [28]

Answer:

false

Explanation:

The Coase theorem states that parties in dispute should seek an optimal solution to their problem regardless of how property rights were initially distributed.

In this case, you need to find an agreement that satisfies both Darnell and Jacques regardless of who initially would have been considered to be right about the argument. Conflicts over rights to use property can be solved when parties settle on the efficient use of inputs. E.g. they could establish hours at which Darnell can listen to rock n' roll, and other hours when he shouldn't. That way both of them can enjoy the music they like and not bother the neighbors.

An optimal solution can always be reached regardless of initial distribution of rights.

7 0
3 years ago
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