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    Barbow Enterprise Accounting

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    Barbow Enterprises, Inc., is considering an expansion in their operations. One of the first items they want to examine is their cost of capital. According to the accounting department, the following items and their respective costs have been identified:
    • The cost of Common Equity: 15%
    • The before tax cost of debt: 12%
    • No Preferred stock
    They have also calculated the marginal tax rate to be 40% and the stock sells at its book value.
    Barbow Enterprises Inc.
    Balance Sheet
    Assets Liabilities and Owners' Equity

    Cash $240 Long Term Debt $2,304
    Accounts Receivable 480 Equity 3,456
    Inventories 720
    Net P&E 4,320
    Total Assets $5,760 Total Liabilities and owners' Equity $5,760
    Calculate Barbow's after-tax weighted average cost of capital, using the data in the balance sheet above.

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    https://brainmass.com/business/debt-ratio/barbow-enterprise-accounting-550710

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    Solution is attached. Glad to help.

    Barbow Enterprises, Inc., is considering an expansion in their operations. One of the first items they want to examine is their cost of capital. According to the accounting department, the following items and their respective costs have been identified:
    • The cost of Common ...

    Solution Summary

    The expert calculates the Barbow's after-tax weighted average cost of capital.

    $2.19