Answer and Explanation:
The computation is shown below:
Debt = D ÷ (E + D)
= 0.8 ÷ (1 + 0.8)
= 0.4444
Now
Weight of equity = 1 - Debt
= 1 - 0.4444
= 0.5556
As per Dividend discount model
Price = Dividend in 1 year ÷ (cost of equity - growth rate)
40 = $2 ÷ (Cost of equity - 0.06)
Cost of equity = 11%
Cost of debt
K = N
Let us assume the par value be $1,000
Bond Price =∑ [(Annual Coupon) ÷ (1 + YTM)^k] + Par value ÷ (1 + YTM)^N
k=1
K =25
$804 =∑ [(7 × $1000 ÷ 100)/(1 + YTM ÷ 100)^k] + $1000 ÷ (1 + YTM ÷ 100)^25
k=1
YTM = 9
After tax cost of debt = cost of debt × (1 - tax rate)
= 9 × (1 - 0.21)
= 7.11
WACC = after tax cost of debt × W(D) + cost of equity ×W(E)
= 7.11 × 0.4444 + 11 × 0.5556
= 9.27%
As we can see that the WACC is lower than the return so it should be undertake the expansion
Answer:
Year 1, Year 2 purchasing power = 8 , 9 (respectively). As price level fall, value of money<u> Increases </u>
Explanation:
Year one purchasing power = Money ($) / Price per basket = 72 / 9 = 8
Year two purchasing power = Money ($) / Price per basket = 72 / 8 = 9
This implies that, as price level falls (from 9 to 8 here) ,the value of money ie purchasing power increases (from 8 to 9)
Answer:
Employable: suitable for paid work.
Answer:
The type of savings you should make is a fixed term deposit
Explanation:
When we have unused capital and want to make it grow, it is a good alternative to earn money because, when we leave our money in a bank for a certain time, we will receive it together with an additional sum due to profitability, Our reward for leaving the money to the bank and not using it.
Answer:
The principle or model of voluntary exchange assumes that people will act based on self-interests. This is an important component of a healthy economy. If individuals in a market economy do not feel that they will benefit from the exchange, they would not be willing to make it.
Hope this helps!
