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NEW QUESTION: 1
Clay Industries, a large industrial firm, is examining its capital structure. The firm is financed according to the following schedule based on market values:
50% debt
40% common stock
10% perpetual preferred stock
Additionally, consider the following information:
Yield on outstanding debt: 8.50%
Tax rate: 35%
Annual preferred dividend: $2.55
Preferred stock price: $25.97
Return on equity: 16.75%
Dividend payout ratio: 50%
Cost of common stock: 14.25%
Using this information, what is the Weighted Average Cost of Capital for Clay Industries?
A. 9.37%
B. 9.37%
C. 9.45%
D. 9.25%
E. None of these answers
F. 8.97%
Answer: C
Explanation:
Explanation/Reference:
Explanation:
In order to calculate the WACC, it is necessary to first calculate the component after-tax cost of debt, common equity, and preferred equity. Once the cost of these components is determined, they are imputed into the WACC equation, which is as follows:
{WACC = [(% weight of debt securities * cost of debt) + (% weight of common stock * cost of common stock) + (% weight of preferred stock * cost of preferred stock)]} To calculate the component cost of debt, use the following equation:
{After-tax cost of debt = [yield on outstanding debt securities * (1 - tax rate)} Factoring in the given information into this equation would yield the following:
{After-tax cost of debt = [8.50% * (1 - 0.35%)]} = 5.525%
To calculate the component cost of outstanding preferred stock, the following equation must be used:
{Cost of preferred stock = [annual dividend / preferred stock price]}
{Cost of preferred stock - = [$2.55 / $25.97]} = 9.82%.
The final component of the WACC calculation, the cost of common equity, has been provided as 14.25%.
Now that the after-tax cost of debt, preferred stock, and common stock have been determined, the WACC calculation can be found. The calculation of the WACC is as follows:
{[0.50 * 0.05525] + [0.40 * 0.1425] + [0.10 * 0.0982]} = 9.445%
NEW QUESTION: 2
SCENARIO A Six Sigma team is measuring the moisture content of corn starch as it leaves the conveyer belt of a dryer. They collect one sample four cups of starch at times indicated in the chart at fixed locations labeled A, B, C, and D across the end of the belt. See the diagram below.
Find the sample linear correlation coefficient and the sample coefficient of determination for the data in problem VI.11.
A. 0.74, 0.55
B. 0.33, 0.11
C. 0.83, 0.69
D. 0.49, 0.24
Answer: D
NEW QUESTION: 3
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C. 207.165.200.254 über Serial0 / 0/1
D. 207.165.200.254 über Serial0 / 0/0
Answer: B