# SIROM Scientific Solutions has \$10 million of outstanding equity and \$5 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 2. If the market risk premium is 9% and the risk-free rate is 3%, compute the weighted average cost of capital if the firm’s tax rate is 30%.

15.167%

Explanation:

For computing the WACC we need to do the following calculations which are shown below:

Cost of equity = Risk free rate + Beta × Market risk premium

= 3% + 2 × 9%

= 21%

After tax cost of debt = Cost of debt ×  (1-Tax Rate)

= 5% × (1 - 0.30)

= 3.50%

Now

WACC = Weight of debt ×  Cost of debt + Weight of equity × Cost of equity

= 5 ÷ 15 × 3.50 + 10 ÷ 15 × 21

= 1.167% + 14%

= 15.167%

## Related Questions

As a long-term investment, Painters' Equipment Company purchased 25% of AMC Supplies Inc.'s 500,000 shares for \$580,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMC’s net assets were equal. During the year, AMC earned net income of \$350,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is \$615,000. Required: 1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year. 2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year.

A.Journal entries

(1)

Dr Investment in AMC common shares

\$580,000

Cr Cash \$580,000

(2) No journal entry required

(3) Dr Cash \$31,250

Cr Investment Revenue \$31,250

\$35,000

Cr Net unrealised holding gains and losses- OCI \$35,000

(B.) Journal entries

Dr Investment in AMC common shares \$580,000

Cr Cash \$580,000

(2) Investment in AMC common shares

Dr \$87,500

Cr Investment Revenue \$87,500

(3) Dr Cash \$31,250

Cr Investment in AMC common shares \$31,250

(4) No journal entry required

Explanation:

A.Journal entries

(1)

Dr Investment in AMC common shares

\$580,000

Cr Cash \$580,000

(2) No journal entry required

(3) Dr Cash \$31,250

Cr Investment Revenue \$31,250

\$35,000

Cr Net unrealised holding gains and losses- OCI \$35,000

Working notes:

Cash Dividends = 25%*500,000*\$0.25 = \$31,250

Fair value adjustment = 580,000-615,000 = \$35,000

B.) Journal entries:

(1)

Dr Investment in AMC common shares \$580,000

Cr Cash \$580,000

(2) Investment in AMC common shares

Dr \$87,500

Cr Investment Revenue \$87,500

(3) Dr Cash \$31,250

Cr Investment in AMC common shares \$31,250

(4) No journal entry required

Working notes:

Net Income:

Investment in AMC common shares = 25%*350,000= \$87,500

Cash Dividends = 25%*500,000*\$0.25= \$31,250

Define own-price elasticity of demand and explain how it is related to the demand curve. Provide four reasons why the demand for medical services is likely to be inelastic with respect to its price

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Explanation:

Own price elasticity of demand is the degree of the responsiveness of the quantity demanded due to some change in price, keeping other factor constant.  Price elasticity of demand on a linear demand curve will fall continuously as the curve slopes.

The four reasons are:

1. Medical aid is enivatble: Because medical services are a necessity for every human beings to live a healthy life, and if their is high change in price with respect to quantity demanded, person cannot ignore to take medical services in bad times or when seriously ill.

2. Comparing the actual size of the population, the number of doctors are compartively less.

3. The services of medical cannot be prolonged or postponed.

4. Love among people- One can be miser in food and clothing, but in diseases they have to take medical help and people will put in the whole money to save his closer one's life, this is the love we people have.

ImpressMe Products embosses notebooks with school and corporate logos. Last year, the company’s direct labor payroll totaled \$352,100 for 50,300 direct labor hours. The standard wage rate is \$6.75 per direct labor hour. Calculate ImpressMe’s direct labor rate variance. (Round answer to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct labor rate variance= \$12,575 unfavorable

Explanation:

Giving the following information:

Last year, the company’s direct labor payroll totaled \$352,100 for 50,300 direct labor hours. The standard wage rate is \$6.75 per direct labor hour.

To calculate the direct labor rate variance, we need to use the following formula:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

Actual rate= 352,100/50,300= \$7 per hour

Direct labor rate variance= (6.75 - 7)*50,300

Direct labor rate variance= \$12,575 unfavorable

You purchase a raffle ticket to help out a charity. The raffle ticket costs \$5. The charity is selling 2000 tickets. One of them will be drawn and the person holding the ticket will be given a prize worth \$4000. Compute the expected value for this raffle.

-\$3

Explanation:

Data provided in the question:

Cost of raffle ticket = \$5

Number of tickets sold = 2000

Probability of winning = 1 ÷ 2000 = 0.0005

Winning prize = \$4,000

Now,

The expected value of prize =  Probability of winning × Winning prize

= 0.0005 × \$4,000

= \$2

Therefore,

The expected value for this raffle

= expected value prize - Cost of raffle ticket

= \$2 - \$5

= -\$3

You are depositing \$1,234 in a saving account now and two years from now you deposit another \$2,345 into the same savings account that earns 3.456% annual interest. How much money will you have at the end of 8 years?

4,494.68

Explanation:

Formula

Fc = Ic (1+i) ^ n

Where;

Fc= Final Capital

Ic= Inicial Capital

i= interest rate

n= period

In this particular case:

Fc = 1234 (1+0.034556) ^ 8 + 2345 (1+0.03456) ^ 6

Fc = 4,494.68

Assume a closed economy. In the long run, an increase in the saving rate Group of answer choices doesn’t change the level of productivity or income. raises the levels of both productivity and income. raises the level of productivity but not the level of income. raises the level of income but not the level of productivity.

Answer: Raises the levels of both productivity and income

Explanation:

In a closed Economy, there is no trade with the outside world.

That would mean that the GDP formula for their expenditure model will look like this,

Y = C + I + G

Where Y is (GDP)

C is consumption

I is investment and,

G is Government Spending

Investment is also known as Savings because it is the amount of Total income that is not spent after individuals CONSUME and the Government SPENDS,

I = Y - G - C.

When an economy SAVES MORE they are sacrificing consumption now for future consumption and saving more.

This means that there is more money to invest in Economic activities.

Since there is a higher Investment in Economic activities, we can expect higher CAPITAL STOCK which can drive Economic growth as it leads to greater productivity as well as greater income because the Economy is growing.

The Harrod-Domar model of economic growth speaks more on this.