Easy Car Corp. is a grocery store located in the Southwest. It paid an annual dividend of $2.00 last year to its shareholders and plans to increase the dividend annually at the rate of 4.0%. It currently has 2,000,000 common shares outstanding. The shares currently sell for $13 each. Easy Car Corp. also has 30,000 semiannual bonds outstanding with a coupon rate of 10%, a maturity of 23 years, and a par value of $1,000. The bonds currently have a yield to maturity (YTM) of 8%. What is the weighted average cost of capital (WACC) for Easy Car Corp. if the corporate tax rate is 30%?
When answering this problem enter your answer using percentage notation but do not use the % symbol and use two decimals (rounding). For example, if your answer is 0.10469 then enter 10.47; if your answer is 10% then enter 10.00

Answer:_____

Answers

Answer 1

Answer:

Since the instruction in the question indicates that the % symbol should not be used, the weighted average cost of capital (WACC) for Easy Car Corp is therefore 12.07.

Step-by-step explanation:

This can be calculated using the following steps:

Step 1: Calculation of the current bond price

Semiannual coupon amount = Bond face value * Semiannual coupon rate = $1000 * (10% / 2) = $50

Semiannual coupon discount factor = ((1 - (1 / (1 + r))^n) / r) .......... (1)

Where;

r = Semiannual yield to maturity (YTM) = 8% / 2 = 0.08 / 2 = 0.04

n = number of semiannuals = 23 years * 2 = 46

Substituting the values into equation (1), we have:

Semiannual coupon discount factor = ((1-(1/(1 + 0.04))^46) / 0.04) = 20.8846535613106

Present value of coupon = (Semiannual coupon amount * Semiannual coupon discount factor) = $50 * 20.8846535613106 = $1,044.23

Present value of the face value of the bond = Face value / (1 + r)^n = $1,000 / (1 + 0.04)^46 = $164.61

Therefore, we have:

Current bond price = Present value coupon + Present value of the face value of the bond = $1,044.23 + $164.61 = $1,208.84

Step 2: Calculation of weights of each finance source

Market value of common shares outstanding = Number common shares outstanding * Current price per share = 2,000,000 * $13 = $26,000,000.

Market value of bond = Number of bonds * Current bond price = 30,000 * $1,208.84 = $36,265,200

Total financing market value = Market value of common shares outstanding + Market value of bond = $26,000,000 + $36,265,200 = $62,265,200

Weight of Market value of common shares outstanding = Market value of common shares outstanding / Total financing market value = $26,000,000 / $62,265,200 = 0.42

Weight of Market value of bond = Market value of bond / Total financing market value = $36,265,200 / $62,265,200 = 0.58

Step 3: Calculation of return on equity

Current year dividend = Last year dividend * (1 + Dividend growth rate) = $2 * (1 + 4.0%) = $2.08

Next year dividend = Current year dividend * (1 + Dividend growth rate) = $2.08 * (1 + 4.0%) = $2.1632

The return on equity can now be calculated using the following formula:

Current share price = Next year dividend / (Return on equity – Dividend growth rate) ………………….. (2)

Where;

Current share price = $13

Next year dividend = $2.1632

Return on equity = ?

Dividend growth rate = 4.0%, or 0.04

Substituting the values into equation (2) and solve for return on equity, we have:

13 = 2.1632 / (Return on equity - 0.04)

13 * (Return on equity - 0.04) = 2.1632

(13 * Return on equity) – (13 * 0.04) = 2.1632

(13 * Return on equity) – 0.52 = 2.1632

13 * Return on equity = 2.1632 + 0.52

Return on equity = 2.6832 / 13

Return on equity = 0.21

Step 4: Calculation of Weighted average cost of capital

Weighted average cost of capital = (WS * CE) + (WD * CD * (1 – T)) ………………… (4)

Where;

WS = Weight of Market value of common shares outstanding = 0.42

WD = Weight of debt = Weight of Market value of bond = 0.58

CE = Cost of equity = Return on equity = 0.21

CD = Cost of debt = YTM = 8%, or 0.08

T = Tax rate = 30%, or 0.30

Substituting the values into equation (3), we have:

Weighted average cost of capital = (0.42 * 0.21) + (0.58 * 0.08 * (1 - 0.30)) = 0.12068, or 12.068%

Rounding to two decimal places, we have:

Weighted average cost of capital = 12.07%

Since the instruction in the question indicates that the % symbol should not be used, the weighted average cost of capital (WACC) for Easy Car Corp is therefore 12.07.


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What is an Equation?

Equations are mathematical statements with two algebraic expressions flanking the equals (=) sign on either side.

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Coefficients, variables, operators, constants, terms, expressions, and the equal to sign are some of the components of an equation. The "=" sign and terms on both sides must always be present when writing an equation.

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De

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By

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Answers

Answer:

[tex]Ratio = 0.74[/tex]

Step-by-step explanation:

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Answers

Answer:

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Answers

Where is the table ?

30 percent of the sixth-grade class said that they spend the most time communicating with friends. Option A is correct.

What is the percentage?

It's the ratio of two integers stated as a fraction of a hundred parts. It is a metric for comparing two sets of data, and it is expressed as a percentage using the percent symbol.

The usage of percentages is widespread and diverse. For instance, numerous data in the media, bank interest rates, retail discounts, and inflation rates are all reported as percentages. For comprehending the financial elements of daily life, percentages are crucial.

The total number of students,

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Thus, 30 percent of the sixth-grade class said that they spend the most time communicating with friends. Option A is correct.

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You roll a 6-sided die.
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Answers

Answer:

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Answers

Answer:

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Set A = {4, 5, 6, 3, 3, 2, 4, 5, 8, 2, 5, 13}

Set B = {5, 6, 4, 2, 8, 4, 5, 6, 5, 2, 8, 3, 7, 3}

Answers

Set A has a peak at 5. It is also skewed to the right. The center is 5.

Set B also has a peak at 5. Is relatively symmetrical. The center is also 5.

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What economic system is controlled by private owners with little government influence?

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B) Chartered companies
C) Market economy

Answers

Answer:

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Step-by-step explanation:

please mark me as brainlist please

Answer: C Market economy

Step-by-step explanation: Its this because i just finished this test and i like seeing if people had the same test as me so.        You Welcome

There are 35 female performers in a dance recital. The ratio of men to women in the recital is 2 : 7 How many men are in the recital?

Answers

There are 32 female performers in a dance recital the ratio of men to women is 3/8 How many men are in the dance recital

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“Elijah and Jeffrey both collect baseball cards. Elijah has one-third as many baseball cards as Jeffrey. Jeffrey owns x cards.” Write an expression to represent the number of baseball cards Elijah owns.

Answers

Answer:

The Answer for this problem would be 2 -third :)

Step-by-step explanation:

It would be 2 third because Jeffrey has x more cards while they both have about the same amount of cards now in this problem we are looking for how many cards Elijah has right? Yes  of course we are!!! Now  we keep the 3rd cause in the problem it say says Elijah has one  3rd as MANY as Jeff :) Now our key  word is as many so we multiply the first number into a two Yes we do!! now you get your answer i hope this helps so much with you guys understanding the simple math have a wonderful day i hope you understand!

The expression for the number of cards Elijah owns is (1/3)x.

What is an expression?

An expression is a way of writing a statement with more than two variables or numbers with operations such as addition, subtraction, multiplication, and division.

Example: 2 + 3x + 4y = 7 is an expression.

We have,

Number of cards Jeffrey owns = x

Elijah has one-third as many baseball cards as Jeffrey.

This means,

Number of cards Elijah owns = (1/3)x

Thus,

The number of cards Elijah owns is (1/3)x.

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