Turnbull Co. is considering a project that requires an initial investment of $270,000. The firm will raise the $270,000 in capital by issuing $100,000 of debt at a before-tax cost of 8.7%, $30,000 of preferred stock at a cost of 9.9%, and $140,000 of equity at a cost of 13.2%. The firm faces a tax rate of 40%. What will be the WACC for this project

Answer:

The answer 9.88%

Explanation:

Value of Debt = $100,000

Value of Preferred Stock = $30,000

Value of Equity = $140,000

Weight of Debt = $100,000 / $270,000

Weight of Debt = 0.37

Weight of Preferred Stock = $30,000 / $270,000

Weight of Preferred Stock = 0.11

Weight of Equity = $140,000 / $270,000

Weight of Equity = 0.52

After Tax Cost of Debt = 8.7% (1 – 0.40)

After Tax Cost of Debt = 5.22%

WACC = (Weight of Debt x After Tax Cost of Debt) + (Weight of Preferred Stock x Cost of Preferred Stock) + (Weight of Equity x Cost of Equity)

WACC = (0.37 x 5.22%) + (0.11 x 9.9%) + (0.52 x 13.2%)

WACC = 9.88%

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: Salary $66,000 Disability income protection premiums 3,000 Long-term care insurance premiums 4,000 His actual salary was $72,000. He received only $66,000 because his salary was garnished and the employer paid the $6,000 owed on James's credit card. The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled. The long-term care insurance is available to all employees and pays $150 per day toward a nursing home or similar facility. What is James's gross income from the above

Branch Company, a building materials supplier, has $18,400,000 of notes payable due April 12, 2022. At December 31, 2021, Branch signed an agreement with First Bank to borrow up to $18,400,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 70% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2021, financial statements, the value of Branch's collateral was $19,600,000. On its December 31, 2021, balance sheet, Branch should classify the notes as follows:

a. $18,400,000 of long-term liabilities.
b. $18,400,000 of current liabilities.
c. $3,680,000 long-term and $14,720,000 current liabilities.
d. $15,680,000 long-term and $2,720,000 current liabilities.