Answer:
open question
Explanation:
An open question allows each respondent to interpret the final answer differently.
Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 8.2%, and its cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 12.4%. However, if it is necessary to raise new common equity, it will carry a cost of 14.2%. If its current tax rate is 40%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.)
Answer:
Turnbull's weighted average cost of capital will be higher by 0.65% if it has to raise additional common equity capital.
Explanation:
By combining the WACC formula and retained earnings cost of capital,we will arrive at;
WACC = Debt W × after tax cost of debt + Preferred stock weight × cost of capital + Equity W × Cost of capital
= 58% × 4.92% + 6% × 9.3% + 36% × 12.4%
= 2.85% + 0.56% + 4.46%
= 7.87%
Also, using the same WACC formula and using common equity cost of capital, , we will arrive at the below;
WACC = Debt W × after tax cost of debt + preferred stock weight × cost of capital + Equity W × cost of capital
= 58% × 4.92% + 6% × 9.3% + 36% × 14.2%
= 2.85% + 0.56% + 5.11%
= 8.52%
Therefore, increase cost using common equity over retained earnings is [ 8.52% - 7.87%]
= 0.65%
N.B we arrived at 4.92% for after tax by;
Pre tax 8.2%
Current tax rate 40%
= Pre tax × ( 1 - cost of debt)
= 8.2% × ( 1 - 40%)
= 8.2% × 0.6%
= 4.92%
A share of stock is now selling for $110. It will pay a dividend of $8 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 4% and the expected rate of return on the market is 15%. (Round your answer to 2 decimal places.)
Expected selling price $
Answer:
P1 = 118.5474 rounded off to $118.55
Explanation:
To calculate the price of the stock at the end of the year or P1, we first need to determine the required rate of return on the stock and the growth rate in dividends.
The required rate of return can be found using the CAPM equation. The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free raterM is the return on marketr = 0.04 + 1 * (0.15 - 0.04)
r = 0.15 or 15%
Now we assume that the stock is a constant growth stock which means that the growth in dividends is expected to be constant throughout. The price of such a stock is found using the constant growth model of DDM. The formula for price today under the constant growth model is,
P0 = D1 / (r - g)
Where,
P0 is price todayD1 is expected dividend for the next periodg is the growth rate in dividendsPlugging in the available variables, g is,
110 = 8 / (0.15 - g)
110* (0.15 - g) = 8
16.5 - 110g = 8
g = (8 - 16.5) / -110
g = 0.077272 or 7.7272% rounded off to 7.73%
So to calculate the price at the end of the year or P1, we will use D2.
P1 = 8 * (1+0.0773) / (0.15 - 0.0773)
P1 = 118.5474 rounded off to $118.55
Though not specifically cited in the producer's contract, the producer is expected to telephone prospects on the insurer's behalf to arrange sales appointments. This is an example of what kind of producer authority?
Answer:
Implied authority
Explanation:
Implied authority defines an authority with respect to agent that involves jurisdiction to perform the acts so that the objectives of the organization could be achieved. Also, it is a binding contract on other person behalf or company
Therefore according to the given situation, this is an example of implied authority
Harver company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 58000 units of RX5 follows. Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 58000 units of RX5 for 18.50 per unit. determine the total incremental cost making 58000 units of Rx5. Determine the total incremental cost of buying 58000 units of RX5. Should the company make or buy RX%
Answer:
Decision = Make
Explanation:
The incremental cost to buy and the incremental cost to make can be calculated as follows
DATA
Direct material = $4 (100% variable)
Direct labor = $8 (100% variable)
Overhead = $9 ( 70% fixed)
Total cost per unit = $21
Offered price = $18.5 per unit
Total units = 58,000
Solution
Incremental cost of making
Direct material ( 58,000 x $4) = $232,000
Direct labor (58,000 x $8) = $464,000
Overhead ( 58,000 x $9 x 30%) = $156,600
Total cost = $825,600
Incremental cost of buying
Total cost = No. of units x offered price
Total cost = 58,000 x $18.5
Total cost = $1,073,000
Decision: The company should make the product as the total cost to buy is $247,400 higher than the cost to make.
Classify the following as a population or sample:
a. Two chimpanzees chosen to carry out genetic research.
b. Statistics 201 is a course taught at a university. Professor Rauch has taught nearly 1,500 students in the course over the past 5 years. You would like to know the average grade for the course.
c. Weather reports for each day of a month in a city for a study on that city's weather during that particular month.
d. To find how many books are published in one week by a famous publishing company.
e. To test a new drug produced by a biotech company.
f. To find the number of men and women working in an IT company with 600 people.
g. To estimate the average salary of doctors in California.
Answer:
Classification as Population or Sample
a. Sample
b. Population
c. Population
d. Population
e. Sample
f. Population
g. Population
Explanation:
The population defines the whole group, while the sample is a part of the population. This means that the sample is less than the population. In statistical research, it is not always possible to study the whole population, unless it is not large. Most times, only the sample is studied and conclusions are then drawn about the population size based on the characteristics discovered about the sample size.
Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Answer:
13.31%
Explanation:
some information is missing:
Year Cash flows
0 −$1,100
1 $450
2 $470
3 $490
the easiest way to calculate the IRR is by using a financial calculator, IRR = 13.31%
but if we don't have one at hand, the IRR is the discount rate at which a project's NPV = 0
1,100 = 450/(1 + r) + 470/(1 + r)² + 490/(1 + r)³
to simplify the formula we must use trial and error:
since we already know the real IRR, I will start with a close number like 10%
1,100 = 450/(1 + 0.1) + 470/(1 + 0.1)² + 490/(1 + 0.1)³
1,100 = 409.09 + 388.43 + 368.14
1,100 ≠ 1,165.66
since the NPV is still positive, we must increase the discount rate. following the example we can use 12%
1,100 = 450/(1 + 0.12) + 470/(1 + 0.12)² + 490/(1 + 0.12)³
1,100 = 401.79 + 374.68 + 348.77
1,100 ≠ 1,125.24
we must increase the discount rate even more to 13%
1,100 = 450/(1 + 0.13) + 470/(1 + 0.13)² + 490/(1 + 0.13)³
1,100 = 398.23 + 368.08 + 339.59
1,100 ≠ 1,105.90
we keep increasing the discount rate to 14%
1,100 = 450/(1 + 0.14) + 470/(1 + 0.14)² + 490/(1 + 0.14)³
1,100 = 394.74 + 361.65 + 330.74
1,100 ≠ 1,087.13
since now the NPV is negative, the discount rate must be between 13-14%
we continue this way until we finally reach 13.31%
Why do we need to deduct gain on sale of plant assets from net income to arrive at net cash flow from operating activities
Answer:
The money received from the sale of assets is included in the net cash flows from investing activities, that is why you must adjust net income by eliminating any gain or loss resulting from these transactions.
Explanation:
E.g. net income = $50,000, and it includes a gain of $5,000 resulting from the sale of a truck. The truck had a book value of $15,000, but was sold at $20,000.
Net cash flows from operating activities:
Net income $50,000
Adjustments to net income:
- Gain on sale of asset ($5,000)
Net cash flow provided by operating activities $45,000
Net cash flows from investing activities:
Sale of truck $20,000
Net cash flow provided by investing activities $20,000
Suppose a period of continuous political instability leads to people to believe that the economy will slide into a deep recession. As a result, people become more likely to accept ________ money in exchange for goods and services.
A. Flat
B. Commodity
U.S. Dollars are an example of _____ money.
A. Flat
B. Commodity
Answer:
The answer is:
1. Commodity
2. Fiat
Explanation:
We have two questions here.
First, the answer is commodity money. Commodity money is the type of money whose value are tied to the commodity it is made up of. This is used as a medium of exchange when the value of money falls totally (during inflation or hyperinflation.) Examples of commodity money can be gold, cocoa,copper etc.
Second question. The answer is fiat money. Fiat money is the currency issued by the national government of a country through The Fed(in US) or Central banks (in most countries).
The fiat money in US is the US dollar, for Nigeria is Nigerian naira etc. It is a legal tender in those countries.
You haven't been able to spend much time talking with your team lately, but your workload should be back to normal soon. When you checked in with your team today, several associates joked about being surprised to see you.
Assuming all option are possible, what would you be most and least likely to do?
Answer and Explanation:
I would most likely do this:
Explain the issue to the team and praise them for their work in my absence. I would let them know there would be more time soon. It is very essential to praise and appreciate these efforts by the associates since I have been absent for a while and do not know what efforts they have been putting in.
I would be least likely to:
Talk to the manager to explain this situation or propose that my some of my commitments are eased for me to have more time with my team
A stock has had returns of 12 percent, 19 percent, 21 percent, −12 percent, 26 percent, and −5 percent over the last six years. What are the arithmetic and geometric average returns for the stock? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
Average rate of return= 10.17 %
Geometric return = 9.23%
Explanation:
Geometric average return
This is compounded annual rate of return which is used to measure the performance of an asset over a certain number of years. It helps to measure the return generated by an investment taking into account the volatility .
Unlike the arithmetic average the geometric average gives an idea of the real rate taking into account of volatility
The formula below
Geometric Return =(1+r1) (1+r2) ...... (1+rn)^1/n
Geometric Average return =
(1.12× 1.19× 1.21× 0.88× 1.26× 0.95)^(1/6) - 1 =0.09233168
Geometric return =0.0923 × 100= 9.23%
Geometric return = 9.23%
Average rate of return
The average return is the sum of the returns over the years dividend by the Numbers of returns
Average return = sum of return / No of returns
(12% + 19% + 21% + (12%) + 26% + (5%))/6 =10.17 %
Average rate of return= 10.17 %
Geometric return = 9.23%
Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.
Answer:
Find the explanation below.
Explanation:
1. Sole Proprietorship is owned by a single person or a married couple.
a. Ease of formation: This business is very easy to form because owners are not required to have legal documentation for the business to begin operation.
b. Liability of Owners: Owners are personally liable for the success or failure of the business. This means that they bear the cost of whatever debt or losses that are incurred in the business and can be sued for it.
c. Management: The owner makes all the management decisions that could affect the business. He sets the time when his business can be run as well as the prices for his products.
d. Tax Implications: They fill out Schedule C where they calculate the profit and loss from their business. They declare their income in Standard Form 1040 and they are subject to Self-employment tax.
2. General Partnership is a business agreement between to or more owners.
a. Ease of Formation: It is quite easy to start this business because little or no legal documentation is required to kick-start the business.
b. Liability: All partners are liable for debts and losses incurred in the business.
c. Management Decisions: The management decisions are made by the general partners. This affords them a measure of flexibility.
d. Tax implications: Income tax is not paid rather, a separate tax return form is filed.
3. Limited Liability Company: These business entities are run by two or more business partners.
a. Ease of Formation: It is relatively easy to form because it is governed by state rules and regulations which must be adhered to by the business owners.
b. Liability: There is a limited liability as just the business assets can be withheld when there is a legal battle. Personal assets of partners can not be withheld.
c. Management Decisions: There could be a member-managed LLC where members make decisions in the business or a manager-managed LLC one or two non-members are employed to manage the business and make business decisions therein.
d. Taxation: Taxation is done once and profits realized are passed through to the personal income taxes of the members.
4. Corporations are set up by a group of businesspeople.
a. Ease of Formation: They are not easy to form as proper documentation which is governed by state laws must be adhered to.
b. Liability: There is a limited liability as shareholders are not held accountable for the debts and losses of the corporation.
c. Management: There are directors of the corporation who are elected by the shareholders, They make decisions for the corporation. Business officers are also appointed.
d. Tax Implications: There are lots of taxation requirements for which the corporation might seek advice from a taxation advisor to prevent double taxation.
As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data:
Sales revenues $13,000
Depreciation $4,000
Other operating costs $6,000
Tax rate 35.0%
What is the Year 1 cash flow?
a. $6,962
b. $5,950
c. $7,438
d. $5,177
e. $7,378
Answer:
$5,950
Explanation:
Boulder incorporation reported the following data for year 1
Sales revenue= $13,000
Depreciation= $4,000
Other operating costs= $6,000
Tax rate= 35%
The first step is to calculate the EBIT
= sales revenue-operating costs-depreciation
= $13,000-$6,000-$4,000
= $3,000
Therefore, the cash flow for year 1 can be calculated as follows
= 3,000×35/100
= 3,000×0.35
= 1,050
= 3,000-1,050
= 1,950
Cash flow= 4,000+1,950
= $5,950
Hence the cash flow for year 1 is $5,950
f covered interest arbitrage opportunities do not exist, Group of answer choices interest rate parity holds. interest rate parity does not hold. interest rate parity holds, and arbitragers will be able to make risk-free profits. arbitragers will be able to make risk-free profits. interest rate parity does not hold, and arbitragers will be able to make risk-free profits.
Answer: interest rate parity holds
Explanation:
Covered interest arbitrage is a trading strategy that is used by an investor when the person whereby takes advantage of the differences in interest rate between two nations and invest in the currency that brings higher value.
If covered interest arbitrage opportunities do not exist, it simply means that interest rate parity holds.
TB MC Qu. 9-100 The following labor standards have been ... The following labor standards have been established for a particular product: Standard labor-hours per unit of output 9.6 hours Standard labor rate $ 13.40 per hour The following data pertain to operations concerning the product for the last month: Actual hours worked 7,400 hours Actual total labor cost $ 96,200 Actual output 950 units What is the labor efficiency variance for the month
Answer:
Direct labor time (efficiency) variance= $23,048 favorable
Explanation:
Giving the following information:
Standard labor-hours per unit of output 9.6 hours
Standard labor rate $ 13.40 per hour
Actual hours worked 7,400 hours
Actual output 950 units
To calculate the direct labor efficiency variance, we need to use the following formula:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Standard quantity= 9.6*950= 9,120
Direct labor time (efficiency) variance= (9,120 - 7,400)*13.4
Direct labor time (efficiency) variance= $23,048 favorable
whatis the general termfor resources used by a business to produce good or services referred to as
Answer:
Factors of Production
The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.
Answer: actual level
Explanation:
It should be noted that when determining the standard overhead cost rate, overhead costs have to be grouped into the fixed cost and the variable costs.
The standard overhead applied is based on the actual level of activity multiplied by the predetermined overhead rate.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 15 % 32 % Bond fund (B) 9 % 23 % The correlation between the fund returns is 0.15. What is the Sharpe ratio of the best feasible CAL?
Answer:
0.296875
Explanation:
Given the following :
Probability distribution of risky funds :
- - - - - - - - - - - - - - stock fund(S) - - bond fund(B)
Expected return - - - 15% - - - - - - - - - - 9%
Std - - - - - - - - - - - - - 32% - - - - - - - - - - 23%
Correlation between funds return = 0.15
Sure rate = 5.5%
To calculate the Sharpe ratio we use the formula :
Sharpe Ratio = (Expected Return of Investment - Risk Free Rate) / Standard Deviation of excess return of investment
For the stock fund :
Expected return = 15%
Risk free rate = market sure rate = 5.5%
Standard deviation = 32%
Sharpe ratio of stock fund :
(15% - 5.5%) / 32%
= 9.5% / 32%
= 0.296875
For Bond fund :
Expected return = 9%
Risk free rate = market sure rate = 5.5%
Standard deviation = 23%
Sharpe ratio of bond fund :
(9% - 5.5%) / 23%
= 3.5% / 23%
= 0.1521739
Therefore the Sharpe ratio of the best feasible CAL is the higher of the two ratios which is 0.296875
A publishing company sells 1,250,000 copies of certain books each year. It costs the company $1 to store each book for a year. Each time it must print additional copies, it costs the company $250 to set up the presses. How many books should the company produce during each printing in order to minimize its total storage and setup costs
Answer:
The Company should produce 25,000 books
Explanation:
The production size that minimizes total storage and setup costs is known as the optimum batch size.
Optimum batch size = √(2 × Annual Production Demand × Set up Cost) / Storage Cost per unit
= √ (2 × 1,250,000 × $250) / $1
= 25,000 books
Conclusion :
The Company should produce 25,000 books during each printing in order to minimize its total storage and setup costs.
The GoT cups are a fast seller and you need to ensure that you have enough rolls of paper to fulfill demand. The first stage in the process is to determine the total cost of the current inventory ordering model. Given the following information, how many rolls should they order to minimize costs?H: $1.75 per unitD: 500 rolls per monthQ: 100 units ordered at a timeS: $25 per order
Answer:
EOQ = 414 rolls
Explanation:
In order to calculate the number of orders to minimize the cost, we should calculate that by using the Economic order quantity model.
DATA
Holding cost = $1.75/unit
Annual demand = 500 rolls x 12 = 6000 rolls
Ordering cost = $25
Formula
EOQ =[tex]\sqrt{\frac{2Cod}{Ch} }[/tex]
Where
Co = ordering cost
D = Annual demand
Ch = Holding cost
Solution
EOQ = [tex]\sqrt{\frac{2(6000)(25)}{1.75} }[/tex]
EOQ = [tex]\sqrt{\frac{300000}{1.75} }[/tex]
EOQ = 414 rolls
They should order 414 rolls to minimize the cost.
Answer:
119 units
Explanation:
The economic order quantity is the minimum amount of inventory that a seller must keep to demand and lower the holding cost. The ordering cost is $25 per order. Holding cost is $1.75 per unit. The total demand is 500 units per month. The economic order quantity that will minimize the cost of the GoT cups is
EOQ = [tex]\sqrt{\frac{2*Demand*ordering cost}{Holding cost} }[/tex]
EOQ is 119 units.
On January 1, Power House Co. prepaid the annual rent of $10,140. Prepare the journal entry to record this transaction.
Answer and Explanation:
The journal entry to record the given transaction is shown below:
Prepaid rent Dr $10,140
To Cash $10,140
(Being the prepaid annual rent paid in cash is recorded)
For recording this we debited the prepaid rent as it increased the assets and credited the cash as it reduced the cash so that the proper posting could be done
If you were on the Federal Reserve Board and you were concerned only with reducing high unemployment, you would implement_____________ monetary policy with a focus.
a. Short-term
b. Long-term
c. Contractionary
d. Expansionary
Answer: Expansionary; Short-term
Explanation:
If you were on the Federal Reserve Board and you were concerned only with reducing high unemployment, you would implement an expansionary monetary policy with a short-term focus.
Expansionary monetary policy has the effect of putting more money into the economy. As there is now more money in the economy, the expectation is that there will be more consumption spending as well as investment. More consumption because people have more money and more investment because interest rates reduce when there is an increased money supply. As there is now more investment as well as the need to satiate the increased demand, more companies can expand and employ people thereby reducing unemployment.
This should however be done with a short term view because expansionary monetary policy will lead to higher inflation in the longer term making business operations less profitable.
Florida Curtain Works is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 60% of sales. Fabric purchases and payments are to be made during the month preceding the month of sale. Wages are estimated at 20% of sales and are paid during the month of sale. Other operating costs amounting to 25% of sales are to be paid in the month following the month of sales. Sales revenue is forecasted as follows:
Month Sales
February $440,000
March $450,000
April $480,000
May $500,000
June $510,000
What is the amount of fabric purchases during the month of March?
a. $480,000.
b. $336,000.
c. $288,000.
d. $300,000.
Answer:
Florida Curtain Works
1. Fabric purchases during the month of March:
c. $288,000.
Explanation:
a) Data and Calculations:
Month Sales Cost of Sales Purchases Wages Others
February $440,000 $264,000 $270,000 $88,000
March $450,000 270,000 288,000 90,000 $110,000
April $480,000 288,000 300,000 96,000 112,500
May $500,000 300,000 306,000 100,000 120,000
June $510,000 306,000 102,000 125,000
b) Florida Curtain Works can prepare its budget for the next year by estimating the cost of goods to be sold, the purchases and payments for Fabric during the month based on trade terms, and the wages and other expenses to incur. The budget helps its management to plan, prepare, exert efforts toward achieving the set targets, and analyze actual performance against budget.
The IMF policies that accompany most IMF loans are typically: Multiple Choice expansionary in the short run. procyclical in the long run. contractionary in the long run. contractionary in the short run.
Answer:
contractionary in the long run
Explanation:
contractionary fiscal policy reduces spending and raises taxes. it contract the economy by reducing the amount of money that is available for businesses and for people to spend. it could reduce government expenditure or increase taxes or in other times do both. useful during inflation
Farmer Brown’s total cost curve is a. increasing at an increasing rate. b. increasing at a decreasing rate. c. increasing at a constant rate. d. decreasing.
The question is incomplete:
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.
Farmer Brown's total-cost curve is
a. increasing at an increasing rate.
b. increasing at a decreasing rate.
c. increasing at a constant rate.
d. decreasing.
Answer:
a. increasing at an increasing rate.
Explanation:
To determine the answer, you can create a graph with the information given hich is attached.
You can see that the curve is increasing and because of that you can eliminate option d that is decreasing. Then, you have to consider that increasing at a constant rate would show an straight line which is not the case. Also, increasing at a decreasing rate would show a decreasing slope which is not what you see in the graph. Because of that, the answer is that Farmer Brown’s total cost curve is increasing at an increasing rate because the graphs shows an increasing slope.
Oriole Company uses flexible budgets. At normal capacity of 15000 units, budgeted manufacturing overhead is $120000 variable and $360000 fixed. If Oriole had actual overhead costs of $483000 for 18000 units produced, what is the difference between actual and budgeted costs
Answer:
$21,000 favorable
Explanation:
Given the above information,
Variable overhead rate = $120,000 / 15 units
= $8
Overhead variance = Real - Allocated
= $483,000 - (8 × 18,000 + $360,000 )
= $483,000 - $504,000
= $21,000 favorable
Hankins Corporation has 8.1 million shares of common stock outstanding, 300,000 shares of 4.1 percent preferred stock outstanding, par value of $100; and 185,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $2,000 each. The common stock currently sells for $57 per share and has a beta of 1.15, the preferred stock has a par value of $100 and currently sells for $99 per share, and the bonds have 18 years to maturity and sell for 107 percent of par. The market risk premium is 6.6 percent, T-bills are yielding 3.3 percent, and the company’s tax rate is 24 percent.A. What is the firm’s market value capital structure?B. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?Solve for:A. DebtPreferred StockEquityB. Discount Rate
Answer:
common stocks = 8,100,000 x $57 = $461,700,000
preferred stocks = 300,000 x $99 = $29,700,00
debt = 185,000 x $2,000 x 1.07 = $395,900,000
total market value = $887,300,000
a)
capital structure:
common stocks = $461,700,000 / $887,300,000 = 52.03%
preferred stocks = $29,700,00 / $887,300,000 = 3.35%
debt = $395,900,000 / $887,300,000 = 44.62%
b) WACC = 7.48%
Re = 3.3% + (1.15 x 6.6%) = 10.89%
Cost of preferred stock = 4.1 / 99 = 4.14%
cost of debt = YTM = {55 + [(2,000 - 2,140)/36]} / [(2,000 + 2,140)/2] = 51.11 / 2,070 = 2.469 x 2 = 4.94%
WACC = (10.89 x 52.03%) + (4.14 x 3.35%) + (4.94 x 44.62% x 0.76) = 5.67% + 0.14% + 1.67% = 7.48%
How are the three economic conditions (Growing, Stable, and Declining) called in the Decision Table?
Decision Alternatives
States of Nature
Pay-off
None of the above
Answer:
The anwer for your question is decision alternatives
Joe-Bob wants to buy a car and will need to take out a loan in order to make the purchase. His current monthly income is $3,500 per month. His mortgage payment is $900 per month, and his student loan payment is $350 per month. Note: You do not need to take taxes into consideration for this journal.
a. According to the affordability formulas given, can he afford to take out another loan?
b. When should he follow the affordability formulas?
c. In what cases should he not?
d. How could taking out the car loan impact his other priorities?
Answer:
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
Explanation:
using the affordability formula
The debt to income ratio = [tex]\frac{total debt}{gross income}[/tex]
total debt = mortgage payment + loan repayment = $900 + $350
= $1250
gross income = $3500
hence debt to income ratio = 1250 / 3500 = 0.3571 = 35.7%
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
a. According to the affordability formulas, Joe-Bob cannot afford to take out a car loan. His current DTI without the auto loan is almost 36%.
b. Joe-Bob should follow the affordability formulas to guide his decisions in taking a new loan.
c. Joe-Bob does not need to follow the affordability formulas when his debt to income ratio (DTI) is far below 36%. He can also avoid the affordability formulas when he has the prospect of increasing his monthly income.
d. If Joe-Bob takes out the car loan despite his poor rating on the affordability formulas, he may not afford to pay his bills for necessities.
Thus, Joe-Bob should not take on more loans now until he improves his income. An automobile will require routine maintenance and some repairs, including fuelling.
Data and Calculations:
Current monthly income = $3,500
Monthly mortgage payment = $900
Monthly student loan payment = $350
Total current debts = $1,250 ($900 + $350)
The Affordability Formula (Current Debt Payment to Income Ratio) =
35.7% ($1,250/$3,500 x 100)
The Affordability Rule states that Joe-Bob should not spend more than 36% of his monthly income repaying loans.
Learn more: https://brainly.com/question/20482529
As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D 0 = $0.80; P 0 = $22.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?
Answer:
The cost of common equity from reinvested earnings is 11.84%
Explanation:
The constant growth model of DDM or DCF approach is used to calculate the price of a stock today whose dividends are expected to grow at a constant rate forever. The model values the stock based on the present value of the expected future dividends form the stock.
The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
P0 is price todayD0 is the dividend todayr is the cost of equityg is the growth rate in dividendsPlugging in the available values for all the variables, we can calculate the r or cost of common equity to be,
22.5 = 0.8 * (1+0.08) / (r - 0.08)
22.5 * (r - 0.08) = 0.864
22.5r - 1.8 = 0.864
22.5r = 0.864 + 1.8
r = 2.664 / 22.5
r = 0.1184 or 11.84%
A monopolist's maximized rate of economic profits is $1500 per week. Its weekly output is 500 units, and at this output rate, the firm's marginal cost is $32 per unit. The price at which it sells each unit is $42 per unit. At these profit and output rates, what are the firm's average total cost and marginal revenue?
Answer:
Average total cost = $39
Marginal revenue = $32 per unit
Explanation:
The computation of average total cost and marginal revenue is shown below:-
Average total cost = Selling price - (Economic profit ÷ Weekly output)
= $42 - ($1,500 ÷ 500)
= $42 - 3
= $39
Marginal revenue = Marginal cost
So,
Marginal revenue = $32 per unit
Therefore for computing the average total cost and marginal revenue we simply applied the above formula.
