hics has always been an important aspect of business, but in recent years, its significance has been further highlighted by a growing number of high-profile corporate scandals and increased public scrutiny of corporate behavior. As such, many businesses and organizations are placing a greater emphasis on ethical practices and decision-making.
One of the key reasons for this increased emphasis on ethics is the recognition that ethical behavior is not only the right thing to do, but it also has a positive impact on a company's bottom line. Ethical practices can lead to improved employee morale and productivity, increased customer loyalty, and a better reputation in the community. Additionally, businesses that prioritize ethics are less likely to face legal or financial penalties for unethical behavior.
On the other hand, ethical absolutism and ethical relativism are two theories that help to explain the perspective of ethics.
Ethical absolutism is the belief that there are certain moral rules that are universally and always right or wrong, regardless of the situation or the person's culture. For example, an ethical absolutist would say that it is always wrong to lie, cheat, or steal. This theory holds that there is an objective, universal standard of morality that applies to everyone.
On the other hand, Ethical relativism holds that morality is relative to the individual or the culture, and what is considered right or wrong can vary from person to person or culture to culture. The ethical relativist would argue that lying, cheating, or stealing could be morally acceptable in certain situations or cultures. For example, a relativist would say that something that is considered right in one culture may not be right in another culture.
In conclusion, businesses and organizations are increasingly recognizing the importance of ethics, both from a moral and a business perspective. Ethical absolutism and ethical relativism are theories that help to explain different perspectives on ethics, with the former holding that there are objective moral standards that apply to everyone and the latter believing that morality is relative to individual or culture.
Digby's Elite product Dim has an awareness of 72%. Digby's Dim product manager for the Elite segment is determined to have more awareness for Dim than Andrews' Elite product Apple. She knows that the first $1M in promotion generates 22% new awareness, the second million adds 23% more and the third million adds another 5%. She also knows one-third of Dim's existing awareness is lost every year. Assuming that Apple's awareness stays the same next year (77%), out of the promotion budgets below, what is the minimum Digby's Elite product manager should spend in promotion to earn more awareness than Andrews' Apple product
Answer:
$2 million
Explanation:
The first $1 million will increase awareness to 72% x (1 + 22%) = 87.84%
But 1/3 is lost every year, so awareness will be 87.84% - 72%/3 = 63.84%.
It needs to spend at least $2 million:
Awareness increases to [72% x (1 + 22%) x (1 + 23%)] - 72%/3 = 84.04%
the awareness level will be higher than the 77% threshold.
< Manny signs a variable lease. • He pays $10/square foot. ● His index is 2. His utilities will cost $350. If his index goes up to 2.5 next year, how much will Manny pay in rent? $8/square foot $25/square foot $12.50/square foot $50/square foot
Manny will pay option C. $12.50/square foot in rent.
How do we determine the amount of rent?A variable lease is a type of lease where the rent is based on a specific index or formula, rather than a fixed amount.
In this scenario, Manny is paying $10/square foot and his index is 2, and the utilities cost $350. If the index goes up to 2.5 next year, Manny's rent will increase.
To calculate the increase in rent, we can use the following formula:
Rent = Base rent + (Index x Utilities)
So, if the index goes up to 2.5, the new rent will be:
Rent = $10/square foot + (2.5 x $350)
Rent = $10/square foot + $875
Therefore, Manny will pay $12.50/square foot in rent if the index goes up to 2.5 next year.
So, the correct answer is $12.50/square foot.
learn more about rent: https://brainly.com/question/2281972
#SPJ1
Premier Company owns 90 percent of the voting shares of Stanton, Inc. Premier reports sales of $480,000 during the current year, and Stanton reports $264,000. Stanton sold inventory costing $28,800 to Premier (upstream) during the year for $57,600. Of this amount, 25 percent is still in ending inventory at year-end. Total receivables on the consolidated balance sheet were $81,800 at the first of the year and $119,100 at year-end. No intra-entity debt existed at the beginning or end of the year. Using the direct method, what is the consolidated amount of cash collected by the business combination from its customers
Answer:
$649,100
Explanation:
Calculation to determine the consolidated amount of cash collected by the business combination from its customers
Using this formula
Consolidated amount of cash collected=Premier Sales+Stanton Sales-Inventory-(Ending Total receivables- Beginning Total receivables)
Let plug in the formula
Consolidated amount of cash collected=($480,000 + $264,000-$57,600)-($119,100-$81,800)
Consolidated amount of cash collected= $686,400 -$37,300
Consolidated amount of cash collected== $649,100
Therefore the consolidated amount of cash collected by the business combination from its customers is $649,100
Daft is a product of the Digby company. Digby's sales forecast for Daft is 506 units. Digby wants to have an extra 10% of units on hand above and beyond their forecast in case sales are better than expected. (They would risk the possibility of excess inventory carrying charges rather than risk lost profits on a stock out.) Taking current inventory into account, what will Daft's Production After Adjustment have to be in order to have a 10% reserve of units available for sale
Explanation:
sales forecast for Daft is 506 units. Digby wants to have an extra 10% of units on hand above and beyond their forecast in case sales are better than expected. (They would risk the possibility of excess inventory carrying charges rather than risk lost profits on a stock out.) Taking current inventory into account, what will Daft's Production After Adjustment have to be in order to have a 10% reserve of units available
If your seafood themed restaurant is located along the beachfront, which of these might be an effective marketing
strategy?
Answer:
Sponsor a surfing competition...
Explanation:
Just did it on Virtual Business
These might be a successful marketing tactic if your seafood restaurant is beachfront and support a surf-related event
What is marketing?Marketing is the process of investigating, developing, and providing value in terms of products and services to fulfill the needs of a target market. Potentially includes the selection of a target audience; the selection of certain traits or themes to emphasize in advertising;
Marketing is the activity of investigating, generating, and supplying value in the form of goods and services to fulfill the demands of a target market, potentially including the identification of a target audience; the selection of specific traits or themes to stress in advertising.
Therefore, These might be a successful marketing tactic if your seafood restaurant is beachfront and support a surf-related event
Learn more about marketing here:
https://brainly.com/question/13414268
#SPJ2
Mr X offers Mango for sale to Y at a price of Tk8500 per ton. Initially, Mr. Y accepts X’s offer. But with certain changes in the market situation Mr.Y wants to revocation of the offer and acceptance. Explain how Mr. Y revoked this offer
Mr. Y can revoke an offer by communicating to Mr. X that he no longer wishes to proceed with the sale of mangoes at the agreed-upon price of Tk8500 per ton, which can be done in person, over the phone, or in writing.
What is the definition of revoking an offer?Revocation of an offer occurs when the offeror withdraws the offer before the offeree accepts it. Thus, even if the offeror has already promised to keep the offer open, he can revoke it. The only time this will not occur is if the offeror received compensation to keep the offer open.
It should be noted that an offer can only be withdrawn before it has been accepted. Once an acceptance is communicated, the offer is considered binding and cannot be withdrawn. As a result, it is critical that Mr. Y communicates his rejection of the offer before Mr. X accepts it.
It is also worth noting that even if an offer has not yet been accepted, it can be terminated or become void in certain circumstances. For example, if the offer specifies a time limit for acceptance that expires, the offer is no longer valid. Similarly, if the offer's subject matter is destroyed or becomes unavailable, the offer may be terminated.
Read more about offer
brainly.com/question/29426067
#SPJ1
Why might a marketer choose Internet advertising over television advertising? • A. Because television advertising is more expensive B. Because the Internet has been around longer than television • C. Because Internet advertising is more expensive O D. Because television only reaches people over the age of 50
The reason why a marketer might choose Internet advertising over television advertising is that A. Because television advertising is more expensive.
What were the reasons why a marketer could pick Internet advertising?Without spending money on a disproportionately large audience, online advertising enables you to identify, connect with, and engage people who are likely to be interested in your company. Online advertising provides detailed audience information so you may better target your efforts.
The reduced running costs of online marketing are one of its primary benefits for companies. Internet marketing makes advertising more affordable than more conventional forms of advertising like radio, television, and newspaper ads.
Therefore, option A is correct.
Learn more about Internet at:
https://brainly.com/question/2780939
#SPJ1
In a 10-K financial report, the bottom
line of a company's finances would be
found in which document?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
Batter
Option a is the correct answer. In a financial report, the bottom line of a company's finances would be found in the income statement.
What is an income statement?An income statement or profit and loss account and also known as a profit and loss statement (P&L), statement of profit or loss, revenue statement, statement of financial performance, earnings statement, statement of earnings, operating statement or statement of operations is one of a company's financial statements that displays the revenues and expenses incurred by the company over a specific time period. It explains how the revenues, or "top line," are converted into net income or net profit (the result after all revenues and expenses have been accounted for). The income statement's goal is to demonstrate to managers and investors whether the business gained money (profit) or lost money (loss) during the reporting period.To know more about income statement, visit:
https://brainly.com/question/14308954
#SPJ1
Janet needs an elevator seat attached to her stairs since she has a medical condition that makes her unable to climb the stairs in her house. The $10,000 spent on the elevator seat does not increase the value of her house according to a local appraiser. How much of the capital asset is deductible in Janet’s tax return as a medical expense? Is deductible in the current year as an expense before the AGI limitation?
Answer:
$10,000
Yes
Explanation:
Based on the information given the amount of the capital asset that is deductible in her tax return as a medical expense will be the amount of $10,000 which represent the amount that was spent on the elevator seat which tend to exceeds the increase in value of her house.
YES the deductible in the current year is an expense before the AGI limitation reason been that the amount of 10,000 is been deductible in the current year as an expense before the 10 percent AGI limitation.
Penny is studying to become a nurse. While she is taking her nursing courses, her guidance counselor also advises that she takes a course in
Spanish. How might adding this extra course help Penny in her new career?
A. Penny will be smarter because she has taken more classes
B. Penny will be able to interact with English and Spanish patients.
C. Penny will not use Spanish, but it will keep her busy during college.
D. Penny will qualify for a scholarship if she speaks Spanish.
Answer:
B :))))))))))))))))))))))))
Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows:
Initial investment (for two hot air balloons) $510,000
Useful life 9 years Salvage value $51,000
Annual net income generated 40,290
BBSâs cost of capital 9%.
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of the following:
a. Accounting rate of return.
b. Payback period.
c. Net present value (NPV).
d. Recalculate the NPV assuming BBS's cost of capital is 15 percent.
Answer:
a. 0.17556 = 17.56%
b. 5.59 years
NPV when I is 9% = $60,787.91
NPV when I is 15% = $-59,904.72
Explanation:
Accounting rate of return = Average net income / Average book value
Average book value = (cost of equipment - salvage value) / 2
($510,000 - $51,000) / 2 = $229,500
40,290 / $229,500 = 0.17556 = 17.56%
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = Amount invested / cash flow
Cash flow = net income + depreciation expense
Straight line depreciation expense = (Cost of asset - Salvage value) / useful life
($510,000 - $51,000) / 9 = $51,000
Cash flow = $51,000 + 40,290 = $91,290
$510,000 / $91,290 = 5.59 years
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-510,000
Cash flow in year 1 to 8 = $91,290
Cash flow in year 9 = $91,290 + $51,000
NPV when I is 9% = $60,787.91
NPV when I is 15% = $-59,904.72
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
The following data are taken from the management accounting reports of Dancer Co.:
Div. A Div. B Div. C
Income from operations $1,800,000 $1,350,000 $1,350,000
Total service department charges 1,700,000 1,050,000 1,100,000
If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges, it follows that: _________
Answer:
Dancer Co.
If an incentive bonus is paid to the manager who achieved the highest income from operations before service department charges, it follows that: _________
Division A's manager will be rewarded, whereas the manager did not achieve the best results.
Explanation:
a) Data and Calculations:
Div. A Div. B Div. C
Income from operations $1,800,000 $1,350,000 $1,350,000
Total service department charges 1,700,000 1,050,000 1,100,000
Departmental net income $100,000 $300,000 $250,000
b) The incentive bonus is based on a performance reporting line that is above the bottom-line. It is the bottom-line figure that affects the company. The performance of a division should not be judged solely on a line above the bottom-line. The departmental charges are allocated costs for services consumed during a financial period. They must be taken into account before deciding on an incentive bonus.
The variable overhead efficiency variance measures Select one: A. the degree to which variable overhead has varied over a period of time. B. the degree of efficiency in using variable overhead items such as indirect materials. C. the overall effectiveness of the production supervisor's performance. D. the amount of variable overhead that should have been saved or incurred due to the efficient or inefficient use of the activity base.
Answer: D. the amount of variable overhead that should have been saved or incurred due to the efficient or inefficient use of the activity base.
Explanation:
The variable overhead efficiency variance simply means the difference that exists between the true time which it takes for the production of a particular product and the time that's budgeted for the production of the product and the effect of the difference.
It should be noted that the variable overhead efficiency variance simply measures the amount of the variable overhead which should have been saved or incurred due to the efficient or inefficient use of the activity base.
Therefore, the correct option is D.
A 10-K financial report includes which
of the following financial statements?
A. Record Sheet
B. Balance Sheet
C. Employee Sheet
10-K financial report includes which of the following financial statements: Balance Sheet, Income Statement (also known as Profit and Loss or P&L statement), Cash Flow Statement, Footnotes to the financial statements.
What does a 10-K financial report include?The balance sheet, sometimes referred to as the statement of financial position, gives an overview of the assets, liabilities, and equity of a corporation at a certain point in time.
The income statement, commonly referred to as the profit and loss statement, details the revenues and expenses incurred by a business during a specific time period and displays the business's net income or loss.
The cash flow statement gives details on a company's cash inflows and outflows and gives a general picture of how a company generates and uses cash over a given time period.
The part called Footnotes to the Financial Statements contains extra information on the Financial Statements that the reader might find useful.
To know more about Financial report, refer:
https://brainly.com/question/28458640
#SPJ1
Sin Qua Corporation is a company listed on the stock exchange and issued corporate bonds. which statement is most likely true?
Answer:
B. Investors will have to pay tax on the interest income received from the bonds.
Explanation:
In 2020, Simon, age 12, has interest income of $7,980 from funds he inherited from his grandmother and no earned income. He has no investment expenses. His parents have taxable income of $82,250 and file a joint return. Assume that no parental election is made.
a. Simon's net unearned income is $________ ?
b. Simon's allocable parental tax is $________ ?
c. Simon's total tax is $________ ?
The negative side of miscommunicating
Answer:
Miscommunication has many downsides but one of the most important ones to remember is misunderstanding. Not communicating well with the other side would mean that they do not fully understand or grasp what you are trying to say, which can lead to future arguments, upset and negative feelings, or hurt feelings.
Explanation:
There ya go! Hope this helps
Answer:
A lack of knowing leads to negativity. When people don't have the information or knowledge they feel they need, low productivity results. ...
Employee mistrust, absenteeism and low morale. ...
Bad interpersonal relationships. ...
The “Grapevine Effect”
Failure to communicate in even the smallest of ways can lead to huge delays in project deadlines, tense business relationships and lost profits. Being able to adequately understand, avoid and remedy miscommunications in a business setting could save a business from all these headaches.
Explanation:
~Hope this helps
For each separate case, record the necessary adjusting entry.
1. On July 1, Lopez Company paid $1,800 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31.
2. Zim Company has a Supplies account balance of $6,200 at the beginning of the year. During the year, it purchased $2,600 of supplies. As of December 31, a physical count of supplies shows $1,100 of supplies available.
Answer:
Item 1
Debit : Insurance $1,800
Credit : Prepaid insurance $1,800
Item 2
Debit : Supplies expense $7,700
Credit : Supplies $7,700
Explanation:
send your client an email with a project and risk status. You ask for feedback on project performance. Which best practice should you adhere to when using email to communicate?
Explanation:
Get to the point quickly and be concise., but don't be impersonal or abrupt. Keep your sentences short and clear. Include everything your client needs to know in the email. If you're just providing information and don't need a response, write “No response needed” at the end of the email.
Answer: Take time to write a clear message
Explanation:
Your receiver needs to know what are you writing about.
The following labor standards have been established for product of
16 hours 12.75 per hour
The following data pertain to operations concerning the product for the last month:
Actual hours worked 6,600 hours
Actual total labor cost $131,340
Actual output 1,600 units
1. What is the labor rate variance for the month?
2. What is the labor efficiency varaiance for the month?
Answer and Explanation:
The computation is shown below:
a. The labor rate variance is
= actual labor cost - (standard rate × actual hours)
= ($131,340) - ($12.75 × 6,600 hours)
= $47,190 unfavorable
b. The labor efficency variance is
= (actual hours - standard hours) × standard rate
= (6,600 - (1,600 × 16) × $12.75
= $242,250 favorable
In this way it can be calculated and the same is to be considered and relevant
. A researcher plans to ask employees whether they favor, oppose, or are indifferent about a change in the company retirement program. Formulate a hypothesis for a chi-square test and the way the variable would be created.
A statistical method for assessing the discrepancy between observed and expected data is the Chi-Square test. This test can also be performed to see if our data's categorical variables are related to it.
What are the Fundamentals of Hypothesis Testing?Hypothesis testing is a method for analyzing and inferring information about a population from a sample of data. It helps in deciding which sample data best support claims about the population that are mutually exclusive.
The null hypothesis (H0), which is the default position, is that the event won't take place. If a null hypothesis is not rejected, it has no impact on the study's findings.
Its sign is H0, which is pronounced H-naught.
The alternative hypothesis (H1 or Ha) is the logical antithesis of the null hypothesis. The alternative hypothesis is accepted once the null hypothesis is rejected. Its identifier is H1.
Learn more about Hypothesis testing, from:
brainly.com/question/17099835
#SPJ2
Select all the correct locations on the image.
On the tax bracket table, choose all the marginal tax rates that will apply to a single taxpayer with a taxable income of $75,000.
We can see from the chart that the tax rate, given a person with taxable income of $75000, will be 22%.
Taxable income is what?A person's or an organization's taxable income is their gross income less any legal tax deductions. The amount of revenue an entity generates annually is what the government taxes. It can also be stated as the portion of income that is subject to income tax.
It may include all or a portion of the income, and it is reduced by other deductions and outgoings. Different sums are included as income, expenses, and other deductions depending on the nation and its system.
To know about taxable income visit:
https://brainly.com/question/17961582
#SPJ1
Communication which occurs via staff meeting would fall under which
category?
A. horizontal
C. vertical
B. a synchronous
D. Synchronous
Synchronous communication is the category that would best describe communication which occurs via staff meeting.
What is Synchronous?Synchronous communication is a type of communication that occurs in real-time. It is a two-way process in which both parties involved must be present and actively participating in order for information to be exchanged. The exchange of information is immediate and occurs at the same time; there is no lag time or waiting period.
Synchronous communication is when two or more people are communicating at the same time, such as in a meeting or face-to-face. Horizontal communication is when communication occurs between people at the same level in an organization, while vertical communication is communication between people at different levels in an organization.
To learn more about Synchronous
https://brainly.com/question/29214317
#SPJ1
Select the correct answer.
Which verb form best completes the sentence?
¿A qué hora _____ usted a mi casa?
A.
vendrás
B.
vendrá
C.
vendrán
D.
vendré
Reset Next
Answer:
B
Explanation:
During the late 70s and early 80s, the U.S. economy faced an inflationary period. The chairman of the Fed at that time, Paul Vocker, pursued a monetary policy to reduce inflation in the long run. The principal method used by the Federal Reserve to change the money supply is through open market operations. (a) Which policy would accomplish the Fed's goal to reduce inflation (buy or sell bonds) in the long run
Answer: Sell bonds
Explanation:
One reason there could be inflation in an economy is the high supply of money in the economy. With a high supply, people would have more money and so would demand more goods and services which would take the prices of those goods and services up thereby causing demand pull inflation.
If the Fed wants to reduce this inflation, they need to reduce the amount of money in the economy. They will do this by selling bonds to the public who will then pay in cash which the Fed will then take out of circulation thereby leading to a lower money supply and theoretically, less inflation.
Garcia Company has 10,500 units of its product that were produced last year at a total cost of $157,500. The units were damaged in a rainstorm because the warehouse where they were stored developed a leak in the roof. Garcia can sell the units as is for $2 each or it can repair the units at a total cost of $18,500 and then sell them for $6 each. Calculate the incremental net income if the units are repaired
When you receive your monthly credit card statement, the balance refers to the ______________.
A credit card limit
B amount you spent
C interest charged
Answer:
B
Explanation:
A manufacturer of aerospace products purchased four flexible assembly cells for $500,000 each.
Delivery and insurance charges were $38,000 and installation of the cells cost another $52,000.
Required:
a. Determine the cost basis of the four cells.
b. What is the class life of the cells?
c. What is the MACRS depreciation in year seven?
d. If the cells are sold to another company for $140,000 each at the end of year seven, how much is the recaptured depreciation?
The cost basis of the four cells is thousand.
(Round to nearest whole number)
Answer:
a) $2,360,000
b) Class life of the cells = 10 years.
c) 210748
d) 24976
Explanation:
Cost of each flexible assembly cell = $500,000
Number of flexible assembly cells = 4
Delivery and insurance charge = $38,000
Installation charge = $52,000
a) Calculate the cost basis of the four cells
cost basis = 4 * ( 500,000 + 38,000 + 52,000 )
= $2,360,000
b) The class life of the cells = 10 years with GDS Recovery period = 7 years
c) Determine the MACRS depreciation in year seven ( 7 )
MACRS depreciation in year 7 = rate * cost
where rate = 0.0893 ( value gotten from table attached below )
MACRS depreciation = 0.0893 * 2360000 = 210748
d) Determine the recaptured depreciation
= New selling price * number of assembly cells * rate ( gotten from table )
= $140,000 * 4 * 0.0446 = 24976
Managers at the Bank of Quebec are afraid that the bank will not have enough reserves at the end of the business day to meet withdrawals tomorrow. It currently has two options to borrow money overnight. First, it could borrow money from the Bank of Canada (BOC) at a rate of 0.75%. Second, it could borrow money from other banks at a rate of 0.25%.
1. What is the overnight rate?
2. What is the bank rate?
3. What would happen to other short-term interest rates if the Bank of Canada increases its overnight rate target?
A. They should remain unchanged.
B. They would become irrelevant.
C. They would decrease.
Answer:
Bank of Quebec
1. The overnight rate is 0.25%
2. The bank rate is 0.75%
3. If the Bank of Canada increases its overnight rate target, the other short-term interest rates:
B. They would become irrelevant.
Explanation:
a) Data and Calculations;
Bank of Canada (BOC) rate = 0.75%
Other banks' rate = 0.25%
b) The overnight rate is the interest rate at which a Canadian depository bank lends or borrows funds with other depository institutions in the Canadian overnight market. The central bank rate is the interest rate that the Bank of Canada charges other Canadian banks to borrow funds from it.
Answer:
1. What is the overnight rate? .25%
2. What is the bank rate? .75%
3. What would happen to other short-term interest rates if the Bank of Canada increases its overnight rate target?
It would also increase
Explanation:
Overnight rate:
If a bank needs to borrow money for the very short term, typically overnight, it has two options. First, it can borrow from other banks. This particular interest rate associated with overnight borrowing is referred to as the overnight rate. The overnight rate is not explicitly set by the BOC, but it is determined through the interaction of borrowers and lenders. In the question, the overnight rate is 0.25% . Even though the BOC does not set the overnight rate, it has a large amount of influence over it.
Bank rate:
The second option is for banks to borrow directly from the BOC at an interest rate called the bank rate. The bank rate is set by the BOC and is typically higher than the prevailing overnight rate in order to give banks incentive to borrow from each other. In the question, the discount rate is .75% .
The BOC sets a target for the overnight rate that it attempts to meet through open market operations. This target is typically met. Although households and firms are not directly affected by the overnight rate, the interest rates on other financial assets are. A low overnight rate means that banks can borrow money cheaply to meet reserve requirement. A high overnight rate means that it is expensive for banks to borrow money and the banks will pass this expense onto customers. Therefore, if the overnight rate rises, short‑term interest rates charged by banks will also increase.
Answer to part 3 is not one of the options given. However, the only correct answer would be that the the other short-term interest rates also increase.
Vandelay Industries has a target capital structure consisting of 40% debt, 5% preferred stock, and 55% common equity. Vandelay has 20-year, 11% semiannual coupon bonds that sell at their par value of $1,000. The component cost of preferred stock is 12.4%. Vandelay is a constant growth firm that recently paid a dividend of $2.05, sells for $27.00 per share, and has a growth rate of 7%. Flotation costs on new common stock are 10%, and the firm's marginal tax rate is 25%. What is Vandelay Industries’ WACC assuming they will have to use internal equity?
a. 13%
b. 12.24%
c. 12.74%
d. none of these choices
Answer:
b. 12.24%
Explanation:
The computation is shown below;
The cost of debt is 11%
As when the bonds would be sell at par value so yield to maturity = coupon rate = cost of debt i.e. 11%
Now
cost of equity= ((Do × (1+g)) ÷ P)+g
= (($2.05 × (1 + 7%)) ÷ 27) + 7
= 15.12%
Now
WACC = weight of equity × cost of equity + weight of preferred equity × cost of equity + weight of debt × cost of debt × (1 - tax rate)
= 55% × 15.12% + 5% ×12.4% + 40% × 11% × (1 - 25%)
= 12.24%