Business, 12.03.2020 21:58 robertbyrd2017

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 11%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 9.39%. What is the company's cost of equity capital? Round your answer to two decimal places.

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Answer from: hiji0206

Cost of Equity is 11.25%

Explanation:

WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs.

According to WACC formula

WACC = ( Cost of equity x Weightage of equity )+ ( Cost of debt ( 1- t) x Weightage of debt )

9.39% = ( Cost of equity x 60% )+ ( 11% ( 1 - 0.4) x 40% )

9.39% = ( Cost of equity x 60% )+ ( 11% ( 0.6) x 40% )

9.39% = ( Cost of equity x 60% )+ ( 6.6% x 40% )

9.39% = ( Cost of equity x 60% )+ 2.64%

9.39% - 2.64% = Cost of equity x 60%

6.75% = Cost of equity x 60%

Cost of equity = 6.75% / 60%

Cost of equity = 11.25%

Answer from: Quest

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi

Answer from: Quest

answer: in the short-run firms will respond by raising the price of turkey.

explanation: initially the long-run equilibrium is at a price of $5 per pound of turkey and a quantity of 50 million pounds per year. now, when webmd claims that a protein found in turkey will increase your expected lifespan by 4 years. the consumers demand for turkey will increase at every price shifting the demand curve to the right from d1 to d2. while, there will be no change in the supply curve in the short-run as it is not possible for producers to adjust supply so quickly. as a result the new equilibrium will occur at a higher price and a higher quantity of turkey.

thus, in the short run firms will respond by increasing the price of turkey, selling more quantity at a higher price and earning economic profits.

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