Answer:
r = 0.12516 or 12.516% rounded off to 12.52%
Explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D1 / (r - g)
Where,
D1 is dividend expected for the next period /year g is the growth rate r is the required rate of return or cost of equity
Plugging in the values for P0, D1 and g in the formula, we can calculate the r to be,
22.35 = 1.68 / (r - 0.05)
22.35 * (r - 0.05) = 1.68
22.35r - 1.1175 = 1.68
22.35r = 1.68 + 1.1175
r = 2.7975 / 22.35
r = 0.12516 or 12.516% rounded off to 12.52%
Troy's financial records for the year reflect the following: Interest income from bank savings account $1,800 Taxable annuity receipts 3,600 City ad valorem property tax on investments 270 Investment interest expense 6,300 Calculate Troy's net investment income and his current investment interest deduction. How is a deduction for any potential excess investment interest treated
Answer and Explanation:
The computation is shown below:
Troy net investment income is
= Interest income generated from saving bank account + annuity receipt taxable - city and valorem property tax
= $1,800 + $3,600 - $270
= $5,130
The current interest deduction for the investment is $5,130
And, the treatment of the potential excess interest of the investment should be carried forward
The same is to be considered
At December 31, 2019, Obermeyer Imports reported the following information on its balance sheet.
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000
During 2019, the company had the following transactions related to receivables.
1. Sales on account $2,600,000
2. Sales returns and allowances 45,000
3. Collections of accounts receivable 2,250,000
4. Write-offs of accounts receivable deemed uncollectible 10,000
5. Recovery of bad debts previously written off as uncollectible 3,000
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2019, balances in Accounts Receivable and Allowance for Doubtful Accounts. Post the entries to the two accounts (use T-accounts), and determine the balances.
(c) Prepare the journal entry to record bad debt expense for 2019, assuming that an aging of accounts receivable indicates that estimated bad debts are $22,000.
Answer:
Obermeyer Imports
a) Journal Entries to record each transaction:
1. Debit Accounts Receivable $2,600,000
Credit Sales Revenue $2,600,000
To record the sale of goods on account.
2. Debit Sales Returns $45,000
Credit Accounts Receivable $45,000
To record the return of goods on account.
3. Debit Cash Account $2,250,000
Credit Accounts Receivable $2,250,000
To record collections from customers.
4. Debit Uncollectible Expenses $10,000
Credit Accounts Receivable $10,000
To record the write-off of accounts deemed uncollectible.
5. Debit Cash Account $3,000
Credit Uncollectible Expenses $3,000
To record the recovery of bad debts previously written off.
b) T-accounts:
Accounts Receivable
Accounts Titles Debit Credit
Beginning balances $250,000
Sales Revenue 2,600,000
Sales Returns 45,000
Cash Account 2,250,000
Uncollectible Expenses 10,000
Ending Balances 545,000
Total $2,850,000 $2,850,000
Allowance for doubtful accounts
Accounts Titles Debit Credit
Beginning balances $15,000
Uncollectible expense 7,000
Ending balances $22,000
c) Journal Entry
Debit Uncollectible Expense $7,000
Credit Allowance for doubtful accounts $7,000
To record the allowance for uncollectibles.
Explanation:
a) Data and Calculations:
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000
b) The allowance for Doubtful Accounts will increase by $7,000 to $22,000. As a result, the Uncollectible Expense will be debited with $7,000 while the Allowance for doubtful accounts will be credited with $7,000. This brings the total of Allowance for Doubtful Accounts to $22,000 in accordance with the new estimate based on the aging of accounts receivable.
The journal entries to record each of the transactions will be:
Debit Accounts Receivable $2,600,000
Credit Sales Revenue $2,600,000
(To record the sale of goods on account)
Debit Sales Returns $45,000
Credit Accounts Receivable $45,000
(To record the return of goods on account).
Debit Cash Account $2,250,000
Credit Accounts Receivable $2,250,000
(To record collections from customers)
Debit Uncollectible Expenses $10,000
Credit Accounts Receivable $10,000
(To record the write-off of accounts deemed uncollectible).
Debit Cash Account $3,000
Credit Uncollectible Expenses $3,000
(To record the recovery of bad debts previously written off)
The balances in accounts receivable and allowance for doubtful accounts will be calculated thus:
Debit Beginning balance $250000.
Debit sales revenue $2,600,000.
Credit Sales return $45000
Credit Cash account $2250000
Credit Uncollectible expenses $10000
Credit ending balances $545000
Lastly, the journal entry to record bad debt expense for 2019 will be:
Debit Uncollectible expense $7000.
Credit Allowance for doubtful accounts $7000.
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In most cases, markets are considered more efficent and better off when monopolies are broken up. Why is it hard for governments to do this
Answer:
In simple words, it is hard for governments to break he monopolies as generally as these entities are generally protected by some kind of legal or social convention. A monopoly of an entity that has strategic importance for the nation could be harmful in long run. Also if an individual owns a monopoly due to some patent right etc. then breaking that up will be seen as social injustice.
Metaline Corp. uses the weighted average method for inventory costs and had the following information available for the year. Calculate the equivalent units of production.
Beginning Work in Process (40% complete, $1,100) 200 units
Ending inventory of Work in Process (80% complete) 400 units
Total units started during the year 3,200 units
Answer:
The equivalent units of production 3,320 units
Explanation:
Equivalent units is the amount of work done in the manufacturing process at the end of the period. It includes fully completed units and partially completed units.
Equivalent units of production = ( Beginning work in process + Numbers of units started during the year ) - Incomplete units at the end of the period
Equivalent units of production = ( 200 units + 3,200 units ) - ( 400 units x ( 100% - 80% ) )
Equivalent units of production = 3,400 units - 80 units
Equivalent units of production = 3,320 units
Describe the difference between a fixed-quantity (Q) and a fixed-period (P) inventory systems and provide an example for each.
Answer and Explanation:
The fixed quantity inventory system, the quantity of an order or the lot size is fixed in nature i.e. the similar amount means the quantity is ordered each and every time. It could be managed by continonusly watching the level of inventory. Example - economic order quantity
On the other hand, the fixed period inventory system is a system in which the inventory is to be checked at fixed inventory. It is same as the periodic reveiw system instead of the continuous basis. Example - drugstore
You are about to start your venture in agribusiness, which will be called Consumer's Delight. Create a marketing business plan describing key
aspects of your strategy, such as a mission statement, objectives, marketing mix, promotion techniques, and so on
Answer:
Amiin Fruits and vegetables
Explanation:
mission statement
we want to satisfy all fruits and vegetables needs in our geographical area by offering low price high quality fresh fruits and vegetables
Answer:
The marketing business plan for Consumer’s Delight will consist of the following aspects:
Mission: Consumer’s Delight’s mission is to provide fresh, high-quality vegetables that exceed consumers’ expectation and become their first choice for vegetable grocery shopping.
Marketing objectives: The marketing objectives of Consumer’s Delight will include the following:
Grow at a steady rate each month and capture nearby local vegetable markets.
Acquire new customers every quarter, targeting local restaurants and eventually hotels.
Generate goodwill and become the first choice for large orders.
Expand into allied segments such as logistics and consultation.
Main products (produce): Iceberg lettuce, broccoli, and spinach
Financial objectives: To achieve a 4 percent growth every year. To reduce the number of middlemen involved for transportation, other logistics, and delivery of the produce by 12 percent in the current year. Consumer’s Delight is expected reach its break-even point toward the end of the fourth quarter.
Target markets: Consumer’s Delight is looking at two sets of target markets, namely, individuals (consumers from the local supermarket) and restaurants.
Individual consumers: Green leafy vegetables are always in demand for salads, sandwiches, soups, and so on. The stock also needs to be fresh, which requires a daily turnover. Through current logistics connections, Consumer’s Delight will ensure that the stocks are delivered daily and in the best condition. Consumer’s Delight will also make use of local farmers at various locations to reach the maximum number of individuals.
Restaurants: Consumer’s Delight will work to contact all of the local restaurants in the vicinity, which total 12 in number. The aim will be to acquire long-term contracts with them.
Positioning: Consumer’s Delight will be positioned as:
fresh and healthy
high quality
dependable
Strategies: Consumer’s Delight primary motive is to become the preferred choice of its target group and to capture the entire market within the next five years. The strategy will initially begin with penetrative marketing strategies, wherein we will aggressively market to the local supermarkets. A Consumer’s Delight counter will be set up within the supermarket to take care of the branding and visibility of the agribusiness. The next stage will be to tap local restaurants once a good amount of brand visibility has been created.
Marketing mix: Consumer’s Delight will use the following marketing mix:
Pricing: Consumer’s Delight will price their produce per pound.
Distribution: Consumer’s Delight will connect with local transportation and logistics dealers and will regularly supply supermarkets. The company will follow a similar plan once the contracts from the restaurants begin to materialize.
Promotion: Because creating brand visibility is of paramount importance, Consumer’s Delight will put up posters and flyers inviting consumers to try out their products in the supermarkets. Consumer's Delight will also advertise in the weekly specials and monthly magazines of select supermarkets according to financial feasibility. Social media will be used to connect to potential restaurant clients.
Customer Service: Consumer’s Delight aims to offer the highest level of customer service to ensure loyalty and long-term contracts. Occasional store discounts will form a part of the customer service strategy.
Management and staffing: Consumer’s Delight will start with a small group of employees, and most of them will be work on a contractual basis. The staff members will mainly consist of analysts, consultants, field workers, store keepers, and others with average salaries.
Explanation:
Justify the role of ethics in the workplace
The role of ethics in the workplace is leads to satisfied workers who look forward to going to work rather than viewing it as a burden.
What do you understand by the role of ethics?Ethics can be thought of as the rules that direct our behaviour so that we make the best decisions for the benefit of everybody. In order to tell the truth, maintain our word, or assist a stranger in need, we must follow ethical principles.
A company that implements a workplace ethics programme aligns employee behavior. This encourages transparency, collaboration, and trust as a result. Additionally, workers perform better at their professions when they are aware of the expectations of their superiors.
Integrity is among the most crucial working ethics. Additionally, employees grow to feel attached to and devoted to the company.
Therefore, the role of ethics in the workplace is leads to satisfied workers who look forward to going to work rather than viewing it as a burden.
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Dan signs a check payable to Eagle Investors, Inc., and gives it to Eagle, leaving the amount blank but authorizing Eagle to fill in the check for $1,000. Eagle fills in $1,500 and negotiates the check to First State Bank, to whom Eagle owes $1,500. First State, an HDC, can enforce the check for:
Answer:
$1,500
Explanation:
Based on the information given we were told that Eagle fills in the amount of $1,500 instead of the amount of $1,000 which Dan authorize Eagle to fill in which they went ahead to as well negotiates the check payable to First State Bank because Eagle owes First State Bank the amount of $1,500 which means that First State Bank which is an HDC, can enforce the check for the amount of $1,500 which was negotiated by Eagle to First State Bank.
Therefore First State, an HDC, can enforce the check for: $1,500
The ________ in the Sigma Six cost-of-quality (COQ) equation includes the internal costs before the product is sold (like waste and re-work).
Answer:
Cost of Failure
Explanation:
A manufacturer incurs failure cost when they produce defective goods. The can be both internal and external cost.
Internal cost are those that incur before the product is sold/shipped to the ultimate buyer such as waste, re-work and/or reduction in sales price for re-worked goods. External cost on the other hand are those that occur following the shipment of goods such as warranty claims, cost of any legal action taken by customer, orders cancelled and/or lost of customer goodwill.
In most cases the external cost is higher than the cost incurred on the internal failure of the goods. So most often the manufacturers are more focused on ensuring that the quality standards are achieved.
On January 1, 2020, Sheridan Company purchased a machine costing $344000. The machine is in the MACRS 5-year recovery class for tax purposes and has an estimated $75000 salvage value at the end of its economic life. It's based on half year convention. Assuming the company uses the general MACRS approach, the amount of MACRS deduction for tax purposes for the year 2020 is:__________
Answer:
$68,800
Explanation:
Generally, under the General Depreciation System (GDS) MACRS we use the half-year convention and the depreciation rates are:
year depreciation %
1 20%
2 32%
3 19.20%
4 11.52%
5 11.52%
6 5.76%
When using MACRS, you do not consider any salvage value.
Depreciation expense 2020 = $344,000 x 20% = $68,800
The mid-quarter convention can be used only if 40% of total depreciable assets were purchased during the last 3 months of the year, but not when you purchase them during the first months.
Effective team members are able to deal with and resolve _________.
challenges
disagreements
conflict
problems
Answer:
Challenges
Explanation:
1. Tyler is organizing an extensive scientific research presentation on global warming for his professor. Which organizing triad would be the most appropriate?2. What is the best way to anticipate your audience's reaction when designing your message?
Explanation:
In this question we are going to have the triad to be the
A. the World Wildlife Fund,
B. The United Nations Environment Programme,
And also
C. World Meteorological Organization as the most appropriate.
2. The reaction of the audience to the message is going to be imagined. It would be deeply thought about and the reaction is going to be anticipated in the most natural way that they are expected to react. Messages can be designed in this way.
During the prior fiscal year, Carla Vista Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $2.14 million of raw materials. Carla Vista paid the $2.14 million to acquire the raw materials when the raw materials were only worth $1.67 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase
Answer:
First Carla Vista must record unrealized holding loss due to the purchase commitment:
Dr Unrealized holding gain/loss 470,000
Cr Estimated liability on purchase commitment 470,000
When the purchase is actually carried out, the journal entry should be:
Dr Raw materials inventory 1,670,000
Dr Estimated liability on purchase commitment 470,000
Cr Accounts payable (or cash) 2,140,000
Explanation:
If a company enters a noncancelable purchase commitment, if the market price of the goods is lower than the contract price, the company must record a loss. On the other hand, if the market price is above the contract price, it results in a contingency gain until the gain is recognized when the purchase is actually done.
On February 15, Jewel Company buys bonds of Marcelo Corp. for $200,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On December 31, the bonds had a fair value of $200,300. The entry to record the year-end adjustment is:A. Debit Cash $300; credit Gain on Sale of Investments $300.B. Debit Cash $300; credit Dividend Revenue $300.C. Debit Fair Value Adjustment-Available-for-Sale $300; credit Realized Gain-Income $300.D. Debit Fair Value Adjustment-Available-for-Sale $300; credit Unrealized Gain-Equity $300.E. Debit Fair Value Adjustment-Available-for-Sale $300; credit Interest Revenue $300.
Answer:
D. Debit Fair Value Adjustment-Available-for-Sale $300; credit Unrealized Gain-Equity $300
Explanation:
The journal entry to record the year-end adjustment is as follows
Fair Value Adjustment-Available-for-Sale $300 ($200,300 - $200,000)
To Unrealized Gain-Equity $300
(Being year-end adjustment is recorded)
The available for sale securities would be at fair market value
Therefore the unrealized gain would be $300
hence, the correct option is d.
Kylie is a single mom with two dependent children, Tanner, age 7 and Olivia, age 11. She has AGI of $36,000 and paid $5,300 to a qualified day care center for the two children. What amount of credit can Kylie receive for the child and dependent care credit?
a. $5,300.
b. $1,060.
c. $1,200.
d. $1,272.
Answer:
d. $1,272.
Explanation:
The computation of the amount of credit that received for child and dependent care credit is shown below:
= Total expense × applicable percentage
= $5,300 × 35% - {($36,000 - $15,000) ÷ $2,000 × 1%}
= $5,300 × 24%
= $1,272
hence, the amount of credit that received for child and dependent care credit is $1,272
The cost of indirect labor will initially be charged to:_______.A. Finished Goods Inventory. B. Manufacturing Overhead. C. Cost of Goods Sold. D. Wages Expense.
Answer:
Answer is the number C.
The Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company’s cost of internal equity. Harrison’s bonds yield 11.52%, and the firm’s analysts estimate that the firm’s risk premium on its stock over its bonds is 3.55%. Based on the bond-yield-plus-risk-premium approach, Harrison’s cost of internal equity is:a. 15.23% b. 16.75% c. 19.04% d. 18.28%
Answer:
the formula used to calculate the cost of equity (required rate of return) based on the bond yield plus risk premium is fairly simple:
cost of equity (Re) = yield of debt (bonds) + firm's risk premium = 11.52% + 3.55% = 15.07%
I'm not sure if the question was copied correctly or not, so I looked for similar questions and it included different numbers.
The Harrison Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Harrison's bonds yield 10.28%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Harrison's cost of Internal equity is: = 10.28% + 4.95% = 15.23%
Another question:
The Kennedy Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a company's cost of internal equity. Kennedy's bonds yield 11.52%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 4.95%. Based on the bond-yield-plus-risk-premium approach, Kennedy's cost of internal equity is: = 11.52% + 4.95% = 16.47%
Why is Social Media important in the Business World?
A. your professionalism is judged by it
B. first impressions are formed from it
C. It can make your company look bad
D. All of the above are True
I'll mark Brainliest
Answer:
I'm think It's D. All of the above are true
What type of Businesses has limited liability ?
Answer:
LLC, a limited liability company
Explanation:
A committee of size 5 is to be selected at random from 3 women and 5 men. The probability distribution for the number of women on the committee is normal.
Yes
No
9514 1404 393
Answer:
no
Explanation:
In general discrete distributions from small populations will not be "normal."
Here, the distribution of the number of women is ...
p(n = 0) = 1/56
p(n = 1) = 15/56
p(n = 2) = 30/56
p(n = 3) = 10/56
The distribution is asymmetric and skewed toward lower numbers.
It is NOT NORMAL.
Over a 20-year period an investment of $1,000 in common stocks returned an average of 11% in nominal terms and 4% in real terms. At the end of the 20 years, the portfolio value was:________
a. $3,679.19 in real terms.
b. $1,800 in real terms.
c. $8,062.31 in nominal terms.
d. $7,870.59 in nominal terms.
Answer:
c. $8,062.31 in nominal terms.
Explanation:
The portfolio value required which is at the end of 20 years is the future value of the amount invested initially($1000) , compounded at the nominal rate of return 11% per year as shown below:
FV=PV*(1+nominal interest rate)^n
PV=present value=initial invested=$1000
nominal interest rate=11%
n=time horizon of the investment=20 years
FV=$1000*(1+11%)^20= 8,062.31
McDonalds reported current year pretax book income of $365,000. Included in the computation were favorable temporary differences of $13,750, unfavorable temporary differences of $97,000, and unfavorable permanent differences of $45,000. McDonalds' current income tax expense or benefit would be
Answer:
the current income tax expense or benefit is $103,583
Explanation:
The computation of the current income tax expense or benefit is shown below:
Current income tax expense is
= (pre - tax book income - favourable temporary difference + unfavorable temporary difference + unfavourable permanent difference) × tax rate
= ($365,000 - $13,750 + $97,000 + $45,000) × 21%
= $493,250 × 21%
= $103,583
We assumed the tax rate be 21%
hence, the current income tax expense or benefit is $103,583
One of the most important things to understand about the Income-Expenditure model is that as GDP (or national income) increases ________ increases as well.
Answer:
B. aggregate expenditure
Explanation:
Options are "A. aggregate demand B. aggregate expenditure C. aggregate supply"
One of the most important things to understand about the Income-Expenditure model is that as GDP (or national income) increases, Aggregate Expenditure increases as well. When income or GDP increases along with that, the Aggregate expenditure also rises. The GDP and Aggregate Expenditure shares positive relationship in the long run.
Suppose the economy is in an inflationary gap. According to neoclassical economists, what will happen
Answer:
The following portion describes the description and as per the particular context.
Explanation:
Sometimes when, however according to neoclassical economics, the economy would be in a monetary expansion void, the economy would rebound towards its maximum or projected production level. That's because the ecosystem or the market, throughout essence, is personality. Wage levels are not going to increase. To decrease the difference, joblessness could also increase and therefore not decline.If you purchase a 5-year, zero-coupon bond for $691.72, how much could it be sold for 3 years later if interest rates have remained stable
a. $848.12
b. $911.15
c. $923.50
d. $862.92
Answer:
$862.92
Explanation:
We use this formula in other to solve this problem
price at issue = Fv / (1+r)n
Price at issue = $691.72
Future value fv = 1000
When we substitute into the formula
$691.72 = $1,000/(1+i)⁵
(1+i)⁵ =$1,000/$691.72
(1+i)⁵ = 1.445672
1 + i = (1.445672)1/5
1+i = 1.445672^0.2
1 + i= 1.0765
So that
I = 1.0765 -1
= 0.0765 also 7.65 %
We have after 3 years,
Price = Future Value/ (1+i)²
= $1,000/ 1.0765)²
= $1,000 / 1.158852
This gives us the value of
$ 862.9232
Therefore option d is the correct answer to the question
Suppose 17 pesos can be exchanged for $1. A Mexican businessman is interested in buying a home in Texas. If the price of the home in Texas is $200,000, how many Mexican pesos must he have to buy this home
Answer:
Total cost in pesos= $3,400,000
Explanation:
Giving the following information:
One dollar= $17 pesos
Total cost of the house= $200,000 dollars
To calculate the total cost in Mexican pesos, we need to multiply the exchange rate by the total cost in dollars.
Total cost in pesos= 200,000*17
Total cost in pesos= $3,400,000
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and an 11% coupon, semiannual payment ($55 payment every 6 months). The bonds currently sell for $844.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt?
Answer:
9.84%
Explanation:
The bond's yield to maturity( pre-tax cost of debt) can be determined using the financial calculator approach as below:
N=50 (number of semiannual coupons in 25 years i.e 25*2)
PMT=55 (semiannual coupon=face value*coupon rate*6/12=$1000*11%*6/12=$55)
PV=-844.87 (current market price)
FV=1000 (face value)
CPT I/Y=6.56% (semiannual yield)
annual yield=6.56% *2=13.12%
after tax cost of debt=pretax cost of debt*(1-tax rate)
after tax cost of debt=13.12% *(1-25%)=9.84%
The Domestic Supply and Demand for SUVs in the United States. Suppose the world price equals $50,000 and there is free trade. The United States would _____ SUVs
Answer: export 6 million
Explanation:
The Export of the United sites, which is the export( movement) of goes and services to other countries either by cargo or air freight, and traded or sold.
Another example of export is America’s shipping Automobiles to other countries for sale. The sales of SUV’s in export would be 6 million. Another example of export is the United States exportation of soya beans.
In the context of inventory costs, _____ can reflect backorders or service interruptions for external customers.
a. holding costs
b. stockout costs
c. ordering costs
d. setup costs
Answer:
b. stockout costs
Explanation:
Stockout cost is the cost in which the income is lost or the expenses that are attached to the inventory shortage
It can be occurred in two ways
1. Sales-related: In the case when the customer wants to order a product but at that time the stock is not available so here the company lost the gross margin
2. Inside process-related: This would arised when the company required inventory for running a production but at that time the inventory is not available so the company could incurred extra cost to purchase the inventory
So by above there is an interruption of a service
Therefore the option b is correct
Brown Industries has a debt-equity ratio of 1.5. Its WACC is 9.6 percent, and its cost of
debt is 5.7 percent. There is no corporate tax.
What is the company's cost of equity capital? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
b-1. What would the cost of equity be if the debt-equity ratio were 2.0? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b-2. What would the cost of equity be if the debt-equity ratio were 0.5? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b-3. What would the cost of equity be if the debt-equity ratio were zero? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Answer:
A .Unlevered cost of equity = 9.6
b-1 Levered cost of equity = 28.69
b-2 Levered cost of equity = 14.37
b-3 Levered cost of equity = 9.6
Explanation:
A. First step is to calculate the E/A
D/A = D/(E+D)
D/A = 1.5/(1+1.5)
D/A=0.6
E/A = 1-D/A
E/A=1-0.6
E/A=0.4
Second Step is to calculate WACC using this formula
WACC = Levered cost of equity*E/A+Cost of debt*(1-tax rate)*D/A
Let plug in the formula
0.096= Levered cost of equity*=0.4+0.057*(1-0)*=0.6
Levered cost of equity =15.45%
Third step is to calculate UnLevered cost of equity using this formula
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)
Let plug in the formula
0.1545 = Unlevered cost of equity+1.5*(Unlevered cost of equity-0.057)*(1-0)
Unlevered cost of equity = 9.6
b-1. Calculation for What would the cost of equity be if the debt-equity ratio were 2.0
Using this formula
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)
Let plug in the formula
Levered cost of equity = 9.6+2*(9.6-0.057)*(1-0)
Levered cost of equity = 28.69
b-2. Calculation for What would the cost of equity be if the debt-equity ratio were 0.5
Using this formula
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)
Let plug in the formula
Levered cost of equity = 9.6+0.5*(9.6-0.057)*(1-0)
Levered cost of equity = 14.37
b-3. Calculation for What would the cost of equity be if the debt-equity ratio were zero
Using this formula
Levered cost of equity = Unlevered cost of equity+D/E*( Unlevered cost of equity-cost of debt)*(1-tax rate)
Let plug in the formula
Levered cost of equity = 9.6+0*(9.6-0.057)*(1-0)
Levered cost of equity = 9.6