Answer:
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Explanation:
The <em>expected return</em> is the weighted average of the expected returns in each scenario by its respective probability.
The <em>distribution of the holding period returns </em>(HPR) under three different scenarios is:
State of the economy Scenario #(s) Probability, p(s) HPR
HPR Boom 1 0.336 28.40%
Normal growth 2 0.414 7.90%
Recession 3 0.25 18.90%
The calculations are:
Answer:
WACC = 9.86%
so correct option is d. 9.86%
Explanation:
given data
cost of equity = 11.6 percent
bonds = 6.2 percent
bonds sell = 103.2 percent
debt book value = $408,000
total assets book value= $952,000
market to book ratio = 2.74 times
to find out
what is the company's WACC
solution
we get here first Total book value of equity that is express as
Total book value of equity = Total assets book value - Total debt book value .................1
Total book value of equity = 952000 - 408000
Total book value of equity = $544000
and here market to book ratio is
market to book ratio =
so market value of equity = (2.74 × 544000) = $1490560
and
After tax cost of debt = 6.2 (1 - tax rate)
After tax cost of debt = 6.2 (1 - 0.4)
After tax cost of debt = 3.72%
and
Market value of Debt = 408000 × 103.2%
Market value of Debt = $421056
so
Total market value = $1490560 + $421056
Total market value is =$1911616
and
WACC will be
WACC = Respective costs × Respective weights
WACC =
WACC = 9.86%
so correct option is d. 9.86%