Answer:
11.41%
Explanation:
Unlevered beta for new division:
= Levered beta ÷ [1 + (1 - tax) × D/E]
= 1.6 ÷ [1 + (1 - 40%) × (40 ÷ 60)
]
= 1.14
Beta for Faris's new division:
= Unlevered beta × [(1 + (1 - tax) × D/E]
= 1.14 × [1 + (1 - 40%) × (70 ÷ 30)]
= 2.74
Using CAPM,
Cost of equity, re = Rf + (beta × MRP)
= 8% + (2.74 × 5%)
= 21.71%
WACC:
= (wd × rd) + (we × re
)
= (70% × 7%) + (30% × 21.71%
)
= 11.41%
Answer:
Explanation:
Where Price equals marginal cost ( MC ) , supply will be made .
A ) Supply curve for rainfed area almond growers
P = .02 Q
Q = 50 P
Supply curve for drier area growers
P = .04 Q
Q = 25 P
B ) No of growers of rainfed area = 500
no of growers of dry area = 300
Total supply = Qs = 50 P x 500 + 25 P x 300
= 25000 P + 7500 P = 32500 P
C )
Market demand Qa = 105000 - 2500 P
For equilibrium Qa = Qs
32500 P = 105000 - 2500 P
35000 P = 105000
P = 3
D ) Qs = 32500 x 3 = 97500 .
E ) amount by rainfed growers
= 500 x 50 x 3 = 75000
amount by dry area growers = 300 x 25 x 3 = 22500
Answer:
$1,042.04
Explanation:
to calculate the present value using a continuously compounded interest rate, we can use the following 2 formulas:
1) present value = cash flow / eⁿˣ
- e = 2.71828
- x = 5% / 2 = 2.5%
- n = 10
- cash flow = $1,030
present value = $1,030 / 2.71828¹⁰ˣ⁰°⁰²⁵ = $1,030 / 1.284 = $802.16
2) present value of an annuity = payment [(1 - e⁻ⁿˣ) / (eˣ - 1)]
- payment = $30
- x = 2.5%
- n = 9
- e = 2.71828
present value = $30 [(1 - 2.71828⁻⁹ˣ⁰°⁰²⁵) / (2.71828⁰°⁰²⁵ - 1)] = $30 [(1 - 2.71828⁻⁹ˣ⁰°⁰²⁵) / (2.71828⁰°⁰²⁵ - 1)] = $30(0.2015 / 0.0252) = $239.88
present value of the stream of cash flows = $802.16 + $239.88 = $1,042.04
<span>Martin should look at the company balance sheet as of the end the last accounting period to see the cash balance on the last day of the accounting period.
Jennifer should look at the company cash flow statement as of the end of the last accounting period to see the sources and uses of cash during the accounting period.</span>
Answer:
Using the discount cash flow model to value the company, we can say that the company is worth $85 million / 12% = $708.33 million
Each stock should be worth approximately $708.33 million / 100 million = $7.0833 per stock
If the company uses the cash to finance new projects, then future cash flows should be approximately $97.75 million, and the company's value = $97.75 million / 12% = $814.583 million. This represents a 15% increase in value. The stock price should also increase by 15% to $8.1458 per stock.
If the company instead decides to repurchase stocks using all the cash, then it could repurchase 35.29 million stocks. Since we are assuming that the company's future cash flows wouldn't be affected by this decision, then the company's total value will still be $708.33 million, but each stock would be worth much more = $708.33 / 64.71 million stocks = $10.95. This represents a 34.36% increase with respect to the other alternative of investing the cash.
The issue here, is that this situation is not very realistic. It is not normal for a company to use all of its cash to repurchase stocks since it would result in a huge increase in stock prices (stock prices are set by supply and demand). Also, this would also result in a sharp increase in the cost of equity due to higher risks.
