Purchase Solution

# Finance questions

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Chapter 8

Problems A 1

(Calculating the WACC) The required return on debt is 8%, the required return on equity is 14%, and the marginal tax rate is 40%. If the firm is financed 70% equity and 30% debt, what is the weighted average cost of capital?

A 4

(Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria's tax rate is 30%, what is its WACC?

Book Value Market Value Before-Tax Cost
Bonds \$1,000 \$1,000 8%
Preferred stock 400 300 9%
Common stock 600 1,700 14%

Chapter 9

Problems A 4

(Investment criteria) An investment of \$100 returns exactly \$100 in one year. The cost of capital is 10%.

1. What are the payback, NPV, and IRR for this investment?
2. Is this a profitable investment?

Chapter 10

Problem A 1
(Net income and net cash flows) Julie Stansfield has a bicycle rental shop with annual revenues of \$200,000. Cash operating expenses for rent, labor, and utilities are \$70,000. Depreciation is \$40,000. Julie's tax rate is 40%.

1. What should be Julie's net income?
2. What is her net cash flow?

##### Solution Summary

The solution explains some questions in finance relating to WACC, Payback, NPV, IRR, net income, net cash flow

##### Solution Preview

Chapter 8,

Problems A 1;

(Calculating the WACC) The required return on debt is 8%, the required return on equity is 14%, and the marginal tax rate is 40%.If the firm is financed 70% equity and 30% debt, what is the weighted average cost of capital?

WACC = Proportion of debt X after tax cost of debt + Proportion of equity X cost of equity
= 0.3 X 8% X (1-0.4) + 0.7 X 14%
= 11.24%

A 4;

(Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria's tax rate is 30%, what is its WACC?
Ã? Book Value Market Value Before-Tax Cost
Bonds \$1,000 \$1,000 8% ...

##### Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

##### SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.