Corporate bonds are sometimes packaged by commercial banks into ___________, in which investors receive the interest or principa
1 answer:
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Answer:
since
Explanation:
U(q₁ q₂)
Budget law can be given by
Lagrangian function can be given by
First order condition csn be given by
From eqn (i) and eqn (ii) we have
Putting in euqtion (iii) we have
since
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%