<span>Answer:
At what unit sales level would WCC have the same EPS, assuming it undertakes the investment and finances it with debt or with stock? {Hint: V = variable cost per unit = $8,160,000/440,000, and EPS = [(PQ - VQ - F - I)(1 - T)]/N. Set EPSStock = EPSDebt and solve for Q.} Round your answer to the nearest whole.
units
At what unit sales level would EPS = 0 under the three production/financing setups - that is, under the old plan, the new plan with debt financing, and the new plan with stock financing? (Hint: Note that VOld = $10,200,000/440,000, and use the hints for Part b, setting the EPS equation equal to zero.) Round your answers to the nearest whole.
Old plan units
New plan with debt financing units
New plan with stock financing units
On the basis of the analysis in parts a through c, and given that operating leverage is lower under the new setup, which plan is the riskiest, which has the highest expected EPS, and which would you recommend? Assume here that there is a fairly high probability of sales falling as low as 250,000 units, and determine EPSDebt and EPSStock at that sales level to help assess the riskiness of the two financing plans. Round your answers to two decimal places.
EPSDebt = $
EPSStock = $</span>
Answer:
As the WACC is more than 7.5%, option D is the correct answer.
Explanation:
The weighted average cost of capital or WACC is the cost of a firm's capital structure. To calculate the WACC, we multiply the weight of each component of the capital structure by the cost of that component. The components of capital structure can be one or all of the following namely debt, preferred stock and common stock.
The formula for WACC is,
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 stock respectively
First we need to determine the cost of debt and equity for this firm.
We use the market value of debt and thus, rate for the calculation of WACC.
The cost of debt will be its yield to maturity as it is the current rate or cost. Thus, rD will be 6%.
The cost of equity can be determined using the constant growth model of DDM 's formula for prcie today.
P0 = D0 * (1+g) / (r - g)
80 = 5 * (1+0.05) / (r - 0.05)
80 * (r - 0.05) = 5.25
80r - 4 = 5.25
80r = 5.25 + 4
r = 9.25 / 80
r = 0.115625 or 11.5625%
WACC = 0.5 * 0.06 * (1-0.3) + 0.5 * 0.115625
WACC = 0.0788125 or 7.88125%
As the WACC is more than 7.5%, option D is the correct answer.
Answer:
USD 113 400 total
Explanation
I)
Rate of Activity:
actRate = actBudget/actBase
instruction = USD 1 200 000/600 Sections .= USD 2000/section
facilites = USD 800000/80000 Sq.Ft = USD 10/sq.ft)
student services = USD 290 000/2500 Students = USD 116/student
II)
Total = student services (150 students x USD 116/student) + Instruction (8 sections x USD 2000/section) + Facilities (8000SqFt x USD 10/sq.ft) +=
80 000 + 16 000 + 17 400 = USD 113 400
Answer:
c. 70% / 81% / 90%
Explanation:
Loan to Value ratio LTV is the ratio of borrowers principal loan balance to the appraisal value of the property. Combined Loan to Value Ratio CLTV is the ratio which considers the sum of all the loan taken on the property. High loan to Value ratio is the one which loan is exceeding by the value of borrowers home.
Answer:
$2,625
Explanation:
Conversion cost incurred in September = $6000
Conversion cost incurred in August = $1.15/gallon ×7500 gallons = $8,625
Difference = $8,625 - $6,000 = $2,625
