answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Stels [109]
2 years ago
11

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its befor

e-tax cost of debt is 10%, and its marginal tax rate is 25%. The current stock price is P0=$22.00. The last dividend was D0=$2.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?
Business
1 answer:
Eva8 [605]2 years ago
4 0

Answer:

(A) Cost of equity= 15.74%

(B) WACC = 12.86%

Explanation:

Palencia paint corporation has a 35% debt from it's target capital structure and 65% common equity

The before-tax cost debt is 10%

Marginal tax rate is 25%

Po is $22.00

Do is $2.25

Constant rate(g) is 5%

(A) The cost of common equity can be calculated as follows

= [Do(1+g)/Po] + g

=[2.25(1+0.05)/22] + 5%

= [2.25(1.05)/22] + 5%

= 2.3625/22 + 5%

= 0.1074+5%

= 0.1074×100+5%

= 10.74%+5%

Cost of equity = 15.74%

(B) The WACC can be calculated as follows

= weight of debt×after-tax cost of debt + weight of equity×cost of equity

= (35%)(10%)(1-25%) + (65%)(15.74%)

= (35%)(10%)(1-0.25) + (65%)(15.74%)

=(35%)(10%)(0.75) + (65%)(15.74%)

= 2.63% + 10.23%

= 12.86%

Hence the cost of equity is 15.74% and the WACC is 12.86%

You might be interested in
United Machining's margin was 2% and turnover was 3.0 on sales of $60 million for the year. On the basis on this information____
Hunter-Best [27]

Answer:

B, net income for the year was $1,200,000, average assets were $20 million, ROI was 6%

Explanation:

net income is calculated by multiplying the percentage margin by the sales. We have,

(2 ÷ 100) × $60,000,000

= 0.02 × $60,000,000

= $1,200,000

To calculate the average assets, sales is divided by the turnover.

we have, ($60,000,000 ÷ 3.0)

= $20,000,000.

To calculate the ROI, margin and turnover are multiplied.

we have,

(2% × 3.0) = 6%

Cheers.

3 0
2 years ago
Alexander, Inc., declared and distributed a 10 percent stock dividend on its 700,000 shares of outstanding $5 par value common s
Anna35 [415]

Answer:

  • Common Stock: 3,500,000
  • Additional paid-in capital-Common Stock: 2,100,000  
  • Retained earnings: 995,000

Total stockholders' equity: 6,595,000

Explanation:

  • <u>Common Stock:</u> Values at the common stocks par value. (3,500,000 = 700,000 * 5)
  • <u>Additional paid-in capital-Common Stock: </u>Difference between the paid price by stockholders and par value. The negations made after the issue of the stocks are not taken into account because they don´t include the company. (2,100,000 = 700,000 * 3)
  • <u>Retained earnings:</u> As the dividend are declared after the end of the accountable year they are not taken into account. So the retained earnings final balance include the beginning balance plus the net income of the accountable period. (995,000)
  • <u>Total stockholders' equity: </u>Addition of the previous items.

6 0
2 years ago
What are some industries in which products have proliferated and life cycles have shortened? How have the supply chains in these
Llana [10]

Answer:

The Electronics, beverages, fast-food, and automobile industry are some sectors that have witness proliferation of products and the shortening of product life-cycle.

Supply chain in these industries have seen their processes change overtime and presently more focus on service, and the ability to quickly react and continuously meet the requirements of customers. They have also leverage on information technology and globalisation in extending their supply chain beyond national and regional boundaries with some companies in these industries having aspects of their processes in different country.  

7 0
2 years ago
The Thomas Cook travel agency has experienced financial setbacks due to the Iraq war, the SARS epidemic, and unusually hot weath
Tomtit [17]

Answer:

Threats in its external environment.

Explanation:

Situational analysis can be described as the thorough examination of the internal and external constituents of an organization.

Situational analysis is employed by different organizations to help identify their strengths and weaknesses. It helps to examine the capabilities of employees within an organization.

Situational analysis helps to identify the current strategies and activities that have been put in place inorder to solve problem. It also helps to get a clear insight into the different opinions and experiences of stakeholders.

4 0
2 years ago
After spending months finalizing a marketing plan, the lead marketing manager presents it to the entire company. It soon becomes
Sauron [17]

The correct answer is A) alignment.

After spending months finalizing a marketing plan, the lead marketing manager presents it to the entire company. It soon becomes clear that the budget given in the plan is far lower than the marketing team had determined it would need. This mistake is likely a result of a lack of alignment.

This means that the marketing manager did not respect the parameters originally indicated. His numbers did not align with the necessities of the plan, which means that he did not take into consideration some important factors that at the end, affected the end result of the budget.

7 0
2 years ago
Other questions:
  • Scott Peter’s bank granted him a single-payment loan of $3,250 to pay a repair bill. He agreed to repay the loan in 31 days at a
    10·1 answer
  • The future value of $200 received today and deposited for three years in an account which pays semiannual interest of 8 percent
    12·1 answer
  • Bianca and Dave are a married couple filing a joint tax return. They have a combined gross income of 81,031andclaimfourexemption
    9·2 answers
  • A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The EOQ model is
    5·1 answer
  • Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he t
    15·1 answer
  • When an organization expands into a totally new line of business, it is implementing a strategy of:
    15·1 answer
  • Topanga Group began operations early in 2021. Inventory purchase information for the quarter ended March 31, 2021, for Topanga’s
    10·1 answer
  • Cane company manufactures two products called alpha and beta that sell for $225 and $175, respectively. each product uses only o
    15·1 answer
  • Consider a basket of consumer goods that costs $90 in the United States. The same basket of goods costs CNY 105 in China.
    5·1 answer
  • n Office Manager uses a Periodic Review Inventory System: they check the inventory in their Office Supply Closet once every 10 d
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!