Answer:
Backward Vertical Integration
Explanation:
There are two ways in which integration can be done vertically. When a firm extend towards the direction of the ultimate consumer, we refer to that as forward integration and when the firm extend back to it's own suppliers, we call it backward vertical integration. In this case however, the buyer decides to enter the suppliers business, thus extending back and securing supply. Therefore the scenario described indicates a backward vertical Integration.
Answer: $1,196
Explanation:
Based on the information and the values that are provided in the question, the worth of the investment of the rate of interest is 11% will be calculated as:
=(250 / 1.11) + (520 / 1.11²) + (750 / 1.11³)
= 225.23 + 422.04 + 548.39
= $1,195.66
= $1196 approximately
The worth of the investment will be $1196.
Answer:
WACC - new project = 6.408% rounded off to 6.41%
Explanation:
The WACC or weighted average cost of capital is the cost of a firm's capital structure. The capital structure can consist of one or more of the following components namely debt, preferred stock and common equity. The WACC is calculated as follows,
WACC = wD * rD * (1 - tax rate) + wP * rP + wE * rE
Where,
- w represents the weight of each component
- r represents the cost of each component
- D, P and E represents debt, preferred stock and common equity
- rD * (1 - tax rate) is the after tax cost of debt
We first need to calculate the WACC of the company and then adjust it for the new project.
WACC = 35% * 3.28% + 65% * 10.4%
WACC = 7.908%
As the new project is less risky and has an adjustment factor of -1.5%, the required rate of return for the new project will be,
WACC - new project = 7.908% - 1.5%
WACC - new project = 6.408% rounded off to 6.41%