Calculate barbows after-tax weighted average cost

Assignment Help Corporate Finance
Reference no: EM13199598

Barbow Enterprises, Inc., is considering an expansion in their operations. One of the first items they want to examine is their cost of capital. According to the accounting department, the following items and their respective costs have been identified:

  • The cost of Common Equity: 15%
  • The before tax cost of debt: 12%
  • No Preferred stock

They have also calculated the marginal tax rate to be 40% and the stock sells at its book value.

Barbow Enterprises Inc.

Balance Sheet

Assets



Liabilities and Owners' Equity









Cash

$240

Long Term Debt


$2,304

Accounts Receivable

480

Equity


3,456

Inventories

720



Net P&E

4,320



Total Assets

$5,760

Total Liabilities and owners' Equity


$5,760

Required:

Calculate Barbow's after-tax weighted average cost of capital, using the data in the balance sheet above.

Reference no: EM13199598

Questions Cloud

Explain the process of financial planning : Explain the process of financial planning used to estimate asset investment requirements for a corporation. Explain the concept of working capital management. Identify and briefly describe several financial instruments that are used as marketable ..
Determine if the promise credible or not : Two major networks are competing for viewer ratings in the 8:00-9:00 P.M. and 9:00-10:00 P.M. slots on a given weeknight. Each has two shows to fill this time period and is juggling its lineup. Is this promise credible.
How long would annual payments : How many years would it take to have $50,000 for a home down payment if the first payment is made at the end of the upcoming year (year 1)?
What is its resulting output and profit : Making dresses is a labor-intensive process. Indeed, theproduction function of a dressmaking firm is well described by theequation Q = L - L2/800, where Q denotes the number ofdresses per week and L is the number of labor hours per week.
Calculate barbows after-tax weighted average cost : Calculate Barbows after-tax weighted average cost of capital, using the data in the balance sheet - One of the first items they want to examine is their cost of capital. According to the accounting department
How accurate is the regression equation in predicting sales : Compute the price elasticity of demand for pies at the firm's mean price: ($7.50) and mean weekly sales quantity (20,000 pies). Next, compute the cross-price elasticity of demand. Comment on these estimates.
Determine the optimal asset allocation to make across : Calculate the discrete monthly rates of returns. Using the monthly returns, calculate the arithmetic mean monthly return and the geometric mean monthly return of each series for the overall period. Convert the mean returns to annualised returns.
Determine the average product function : Determine the mariginal product. Determine the average product function. Find the value of L that maximizes QFind the value of L at which the marginal product function takes on its maximum value.
Calculate the profit of each firm at the equilibrium : Suppose that two identical firms produce widgets and that they are the only firms in the market. Their costs are given by C1 = 60Q1 and C2 = 60Q2, where Q1 is the output of Firm 1 and Q2 the output of Firm 2.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Find the amount change in the firms operating cash flow

A cost-cutting project will reduce costs by $48,500 a year. The yearly depreciation on the project's fixed assets will be $11,300 & the tax rate will be 34%.

  Determine each projects net present value

Calculate each project's Net Present Value (NPV), assuming your firm's weighted average cost of capital and calculate each project's Internal rate of Return (IRR).

  Find the cost of preferred stock

Bennington is planning to issue shares of perpetual preferred stock. The preferred stock would have a market value of 100 dollar per share & pay a fixed yearly dividend of dollar 7.20 each share.

  Would this make the model 800 machine more or less desirable

Would this make the model 800 machine more or less desirable and Repairs and maintenance costs on a model 800 machine, with a model 400 machine used as standby, would total $3,800 per year

  Evaluate ten financial ratios

Calculation of financial ratios - Evaluate the following ten (10) financial ratios and provide a one sentence explanation of the analytic use of each ratio test. Show your formulas and input. Accuracy to two decimal points is sufficient.

  Find the amount of airfare

Kimberly is a self employed taxpayer. She recently spent 1,000 dollar for airfare to travel to Italy. Find the amount of airfare is she allowed to reduce in every of given alternative scenarios?

  How would the accounts change

If Trans World stock currently sells for $42 per share and a 10 percent stock dividend is declared, how many new shares will be distributed? Show how the equity accounts would change.

  Analyze cost using the cost classifications

Suppose you are working on a big project for the hospital's CFO. Together, you will create a system to justify the full time employees of laboratory department.

  Show what are the different categories of hedge funds

How does the risk of short-term funds differ from the risk of long-term funds and What are the different categories of hedge funds?

  Difference between arithmetic and geometric averages

Please explain and define in your own terms the difference between arithmetic and geometric averages.

  Find the yield on treasury note

The real risk-free rate is 2.5%. Inflation is expected to be 2% this year, 2.5% next year, and 3% thereafter. The maturity risk premium is .07

  What is the beta of your portfolio

You would like to compute the beta of your portfolio. Your portfolio currently consists of 4 stocks plus $2,200 of T-Bills.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd