Category: Economics

BA 540 Chapter 11 – Calculating the Cost of Capital

LG1 11-1 How would you handle calculating the cost of capital if a firm were planning to issue two different classes of common stock?
LG2 11-2 Why don’t we multiply the cost of preferred stock by one minus the tax rate, as we do for debt?
LG2 11-3 Expressing WACC in terms of iE, iP, and iD, what is the theoretical minimum for the WACC?
LG3 11-4 Under what situations would you want to use the CAPM approach for estimating the component cost of equity? The constant-growth model?
LG3 11-5 Could you calculate the component cost of equity for a stock with nonconstant expected growth rates in dividends if you didn’t have the information necessary to compute the component cost using the CAPM? Why or why not?
LG4 11-6 Why do we use market-based weights instead of book-value-based weights when computing the WACC?
LG5 11-7 Suppose your firm wanted to expand into a new line of business quickly, and that management anticipated that the new line of business would constitute over 80 percent of your firm’s operations within three years. If the expansion was going to be financed partially with debt, would it still make sense to use the firm’s existing cost of debt, or should you compute a new rate of return for debt based on the new line of

?
business

LG6 11-8 Explain why the divisional cost of capital approach may cause problems if new projects are assigned to the wrong division.
LG7 11-9 When will the subjective approach to forming divisional WACCs be better than using the firm-wide WACC to evaluate all projects?
LG8 11-10 Suppose a new project was going to be financed partially with retained earnings. What flotation costs should you use for retained earnings?

 

LG3 11-1 Cost of Equity Diddy Corp. stock has a beta of 1.2, the current risk-free rate is 5 percent, and the expected return on the market is 13.5 percent. What is Diddy’s cost of equity?
LG3 11-2 Cost of Equity JaiLai Cos. stock has a beta of 0.9, the current risk-free rate is 6.2 percent, and the expected return on the market is 12 percent. What is JaiLai’s cost of equity?
LG3 11-3 Cost of Debt Oberon, Inc. has a $20 million (face value) 10-year bond issue selling for 97 percent of par that pays an annual coupon of 8.25 percent. What would be Oberon’s before-tax component cost of debt?
LG3 11-4 Cost of Debt KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par that carries a coupon rate of 11 percent, paid semiannually. What would be Katydid’s before-tax component cost of debt?
LG3 11-5 Tax Rate Suppose that LilyMac Photography expects EBIT to be approximately $200,000 per year for the foreseeable future, and that they have 1,000 ten-year, nine percent annual coupon bonds outstanding. What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac’s WACC?
LG3 11-6 Tax Rate PDQ, Inc. expects EBIT to be approximately $11 million per year for the foreseeable future, and that they have 25,000 20-year, eight percent annual coupon bonds outstanding. What would the appropriate tax rate be for use in the calculation of the debt component of PDQ’s WACC?
LG3 11-7 Cost of Preferred Stock ILK has preferred stock selling for 97 percent of par that pays an eight percent annual coupon. What would be ILK’s component cost of preferred stock?
LG3 11-8 Cost of Preferred Stock Marme, Inc. has preferred stock selling for 96 percent of par that pays an 11 percent annual coupon. What would be Marme’s component cost of preferred stock?
LG4 11-9 Weight of Equity FarCry Industries, a maker of telecommunications equipment, has two million shares of common stock outstanding, one million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par, what would be the weight used for equity in the computation of FarCry’s WACC?
LG4 11-10 Weight of Equity OMG Inc. has four million shares of common stock outstanding, three million shares of preferred stock outstanding, and 5,000 bonds. If the common shares are selling for $17 per share, the preferred shares are selling for $26 per share, and the bonds are selling for 108 percent of par, what would be the weight used for equity in the computation of OMG’s WACC?
LG4 11-11 Weight of Debt FarCry Industries, a maker of telecommunications equipment, has two million shares of common stock outstanding, one million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $14.50 per share, and the bonds are selling for 98 percent of par, what weight should you use for debt in the computation of FarCry’s WACC?
LG4 11-12 Weight of Debt OMG Inc. has four million shares of common stock outstanding, three million shares of preferred stock outstanding, and 5,000 bonds. If the common shares are selling for $27 per share, the preferred shares are selling for $26 per share, and the bonds are selling for 108 percent of par, what weight should you use for debt in the computation of OMG’s WACC?
LG4 11-13 Weight of Preferred Stock FarCry Industries, a maker of telecommunications equipment, has two million shares of common stock outstanding, one million shares of preferred stock outstanding, and 10,000 bonds. If the common shares sell for $27 per share, the preferred shares sell for $14.50 per share, and the bonds sell for 98 percent of par, what weight should you use for preferred stock in the computation of FarCry’s WACC?
LG4 11-14 Weight of Preferred Stock OMG Inc. has four million shares of common stock outstanding, three million shares of preferred stock outstanding, and 5,000bonds. If the common shares sell for $17 per share, the preferred shares sell for $16 per share, and the bonds sell for 108 percent of par, what weight should you use for preferred stock in the computation of OMG’s WACC?
LG2 11-15 WACC Suppose that TapDance, Inc.’s capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is eight percent, while its cost of equity is 13 percent. If the appropriate weighted average tax rate is 34 percent, what will be TapDance’s WACC?

LG2 11-16 WACC Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its before-tax cost of debt is 11 percent while its cost of equity is 15 percent. If the appropriate weighted average tax rate is 25 percent, what will be JB’s WACC?

LG2 11-17 WACC Suppose that B2B, Inc. has a capital structure of 37 percent equity, 17 percent preferred stock, and 46 percent debt. If the before-tax component costs of equity, preferred stock and debt are 14.5 percent, 11 percent and 9.5 percent, respectively, what is B2B’s WACC if the firm faces an average tax rate of 30 percent?
LG2 11-18 WACC Suppose that MNINK Industries’ capital structure features 63 percent equity, seven percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock and debt are 11.60 percent, 9.5 percent , and nine percent, respectively, what is MNINK’s WACC if the firm faces an average tax rate of 34 percent?
LG3 11-19 WACC TAFKAP Industries has three million shares of stock outstanding selling at $17 per share and an issue of $20 million in 7.5 percent, annual coupon bonds with a maturity of 15 years, selling at 106 percent of par. If TAFKAP’s weighted average tax rate is 34 percent and its cost of equity is 14.5 percent, what is TAFKAP’s WACC?

LG3 11-20 WACC Johnny Cake Ltd. has ten million shares of stock outstanding selling at $23 per share and an issue of $50 million in nine percent, annual coupon bonds with a maturity of 17 years, selling at 93.5 percent of par. If Johnny Cake’s weighted average tax rate is 34 percent, its next dividend is expected to be $3 per share, and all future dividends are expected to grow at six percent per year, indefinitely, what is its WACC?
LG4 11-21 WACC Weights BetterPie Industries has three million shares of common stock outstanding, two million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $47 per share, the preferred shares are selling for $24.50 per share, and the bonds are selling for 99 percent of par, what would be the weights used in the calculation of BetterPie’s WACC?
LG4 11-22 WACC Weights WhackAmOle has two million shares of common stock outstanding, 1.5 million shares of preferred stock outstanding, and 50,000 bonds. If the common shares are selling for $63 per share, the preferred shares are selling for $52 per share, and the bonds are selling for 103 percent of par, what would be the weights used in the calculation of WhackAmOle’s WACC?

LG8 11-23 Flotation Cost Suppose that Brown-Murphies’ common shares sell for $19.50 per share, that the firm is expected to set their next annual dividend at $0.57 per share, and that all future dividends are expected to grow by four percent per year, indefinitely. If Brown-Murphies faces a flotation cost of 13 percent on new equity issues, what will be the flotation-adjusted cost of equity?
LG4 11-21 WACC Weights BetterPie Industries has three million shares of common stock outstanding, two million shares of preferred stock outstanding, and 10,000 bonds. If the common shares are selling for $47 per share, the preferred shares are selling for $24.50 per share, and the bonds are selling for 99 percent of par, what would be the weights used in the calculation of BetterPie’s WACC?
LG4 11-22 WACC Weights WhackAmOle has two million shares of common stock outstanding, 1.5 million shares of preferred stock outstanding, and 50,000 bonds. If the common shares are selling for $63 per share, the preferred shares are selling for $52 per share, and the bonds are selling for 103 percent of par, what would be the weights used in the calculation of WhackAmOle’s WACC?
LG8 11-23 Flotation Cost Suppose that Brown-Murphies’ common shares sell for $19.50 per share, that the firm is expected to set their next annual dividend at $0.57 per share, and that all future dividends are expected to grow by four percent per year, indefinitely. If Brown-Murphies faces a flotation cost of 13 percent on new equity issues, what will be the flotation-adjusted cost of equity?
LG2 11-24 Flotation Cost A firm is considering a project that will generate perpetual after-tax cash flows of $15,000 per year beginning next year. The project has the same risk as the firm’s overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 4 percent on an after-tax basis. The firm’s D/E ratio is 0.8. What is the most the firm can pay for the project and still earn its required return?
LG6 11-25 Firm-Wide vs. Project-Specific WACCs An all-equity firm is considering the projects shown below. The T-bill rate is four percent and the market risk premium is seven percent. If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), if any, will be incorrectly rejected?

LG6 11-26 Firm-Wide vs. Project-Specific WACCs An all-equity firm is considering the projects shown below. The T-bill rate is four percent and the market risk premium is seven percent. If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), if any, will be incorrectly accepted?

LG7 11-27 Divisional WACCs Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.6, 1.0, 1.3 and 1.6, respectively. If all current and future projects will be financed with half debt and half equity, and if the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of seven percent) is 13 percent and the after-tax yield on the company’s bonds is eight percent, what will the WACCs be for each division?

LG7 11-28 Divisional WACCs Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.9, 1.1, 1.3, and 1.5, respectively. If all current and future projects will be financed with 25 percent debt and 75 percent equity, and if the current cost of equity (based on an average firm beta of 1.2 and a current risk-free rate of four percent) is 12 percent and the after-tax yield on the company’s bonds is nine percent, what will the WACCs be for each division?

Money and the Prices in the Long Run and Open Economies

Federal Reserve controls the quantity of money. Students will learn how the quantity of money affects inflation and interest rates in the long run, and production and employment in the short run. Students will find that, in the long run, there is a strong relationship between the growth rate of money and inflation. Students will review the basic concepts macroeconomists use to study open economies and will address why a nation’s net exports must equal its net capital outflow. Students will demonstrate the relationship between the prices and quantities in the market for loanable funds and the prices and quantities in the market for foreign-currency exchange. Student will learn to analyze the impact of a variety of government policies on an economy’s exchange rate and trade balance.
Assignment Steps
Resources: National Bureau of Economic Research
Develop a 2,100-word economic outlook forecast that includes the following:
Analyze the history of changes in GDP, savings, investment, real interest rates, and unemployment and compare to forecast for the next five years.
Discuss how government policies can influence economic growth.
Analyze how monetary policy could influence the long-run behavior of price levels, inflation rates, costs, and other real or nominal variables.
Describe how trade deficits or surpluses can influence the growth of productivity and GDP.
Discuss the importance of the market for loanable funds and the market for foreign-currency exchange to the achievement of the strategic plan.
Recommend, based on your above findings, whether the strategic plan can be achieved and provide support.
Use a minimum of three peer-reviewed sources from the University Library.
Format your paper consistent with APA guidelines.

Economics and Decision Making Paper

Scenario: Consider your last big purchase such as a car, appliances, home repairs, home purchase, computer equipment, college tuition, or another “big-ticket” item, which are often purchased using loans/financing (by borrowing money). Also consider your decision-making process that led you to choose a particular make, model, or brand of the product (or service) you purchased and whether it was the right time to make the purchase. While analyzing your decision, keep in mind everything from interest rates to the prices of complementary and substitute goods are driven by human economic behavior.

Develop a minimum 500-750 word analysis of your decision-making process in which you include the following:
Cover page
Introduction (discuss the purchase you will discuss and give information on what you will cover regarding the purchase)
What did you purchase and what prompted you to make the purchase at that time? Consider your decision-making process that led you to choose a particular make, model, or brand of the product (or service) you purchased. Was it the right time to make the purchase?
Discuss substitutes and/or complements you considered prior to making your purchase.
Please discuss the sales tax rate that applied to your purchase (6%, 6.5%, 7%, etc.). Explain why your purchase was or was not impacted by the discretionary sales surtax. In your discussion, you MUST include the appropriate graph of the Florida Sales Tax that applied to your purchase (http://floridarevenue.com/taxes/taxesfees/Pages/sales_tax.aspx, How Tax is Calculated, then download PDF file and cut and paste the table that applies to you). If your purchase was out of state/country, you must provide the tax rate information from a government website.
If you took out a loan to pay for your “big-ticket” purchase, what was the interest rate on your loan? Were interest rates rising or falling at that time? Were interest rates relatively high or low at that time? To find the interest rates at the time of your purchase and for your type of product/service, go to BankRate.com or www.creditkarma.com. Include the table of rates for the 6 months prior AND 6 months after the purchase (for a total of 12 months of data). If you made the purchase less than 6 months ago, provide a total of 12 months data anyway (you will have more historical data). IF YOU DID NOT FINANCE YOUR PURCHASE, say so in your paper and do research (use bankrate or creditKarma) to include the last 12 months of interest rate data being charged for ONE of these lending products: CREDIT CARDS, MORTGAGES, OR AUTO LOANS. You MUST include the graph of these statistics in your report. For your google search you may look for: “trends in mortgage rates”, “trends in credit card interest rates”, “trends in auto loan rates”.
Discuss the influence of any Federal government or state government programs, such as tax credits or tax deductions for energy-saving/efficiency purchases, on your decision to make your last big purchase; or if government incentives did not factor into your decision, explain why not.
Conclusion (summarize what you covered. Do not include new information).
Reference page.
Cite and include in references a minimum of three peer-reviewed sources. Note: You must use the textbook and a government website on taxes (use the one I provided if your purchase was in Florida). Feel free to use bankrate.com or other reputable reference if your purchase was made with a loan. You need a 3rd reputable citation and reference.

Format your paper consistent with APA guidelines.

Propagating National Security Interests

Purpose: The primary goal of this Assignment is to evaluate how communication of foreign policy interests can be influenced by different theoretical perspectives. Your task is to discuss and assess how effective are realist, liberal, and identity theoretical perspectives at communicating U.S. national interests.
Prepare: Read the Conclusion in the course text and the 2015 U.S. National Security Strategy (Links to an external site.)Links to an external site..
Reflect: Effective communication is essential in conducting productive foreign affairs. One of the most important forms of communication is letting other states know national security interests. States work diligently to ensure that other states are aware of their national security interests. Conflict can sometimes erupt when national security interests are not received, are misunderstood, or are poorly communicated. As we discussed in Week Two, history is filled with examples of when states have not received, have misunderstood, or have poorly communicated vital national security interests with catastrophic results. Embedded in the challenges of effective communication is the ability to comprehend the various international relations theoretical perspectives that imbue communications of security goals, objectives, and interests. Again, incomplete awareness and understanding of this form of global political communication can lead to catastrophic results.
Write: In your assignment, complete the following:
Describe one statement in the National Security Strategy (NSS) that is based on the realist perspective.
Describe one statement in the National Security Strategy (NSS) that is based on the liberal perspective.
Describe one statement in the National Security Strategy (NSS) that is based on the identity perspective.
Explain why each statement is an example of the specified theoretical perspective.
Assess which theoretical perspective is the most effective at communicating U.S. national security interests.
The Week Five Assignment:
Must be at least two pages (not including title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.)Links to an external site..
Must include a separate title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted
Must use at least three appropriate sources:
These could include the article, the course text, and any of the required or recommended resources for this week.
You can also include additional resources found on the Ashford University Library website. The Scholarly, Peer Reviewed, and Other Credible Sources table offers additional guidance on appropriate source types.
Must document all sources in APA style as outlined in the In-Text Citation Guide (Links to an external site.)Links to an external site..
Must include an introductory paragraph with a succinct thesis statement.
Must include a conclusion that summarizes the main points and restates the thesis.
Must include a separate references page that is formatted according to APA style as outlined in the APA References List (Links to an external site.)Links to an external site..

Marketing Challenges in a New Economy

Read the article: “Airbnb and the Unstoppable Rise of the Share Economy (Links to an external site.)Links to an external site.”. A recent trend in the consumer marketplace is the ability for a consumer to share their personal belongings, such as their homes/apartments, autos, tools, bicycles, and so forth. The shared economy has now become a multibillion dollar business.
Explain how this concept is disrupting our traditional economy.
Describe whether the shared economy is creating new value for the consumer or if it is just replacing existing business.
The paper
Must be three to four double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.)Links to an external site..
Must include a separate title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted
Must use at least three scholarly sources from the Ashford University Library, one of which must be peer reviewed, in addition to the textbook.
Must document all sources in APA style as outlined in the Ashford Writing Center.

Predicting Price-Setting Strategies

  • From the scenario for Katrina’s Candies, determine the importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence. Examine the common price setting strategies of airlines that use game theory. Predict the potential effects of such pricing strategies on the demand for seats, and conclude the resulting impact on the profitability of the airlines.

Health care Labor Market

This assignment will assess the following competency 3. ANALYZE the influence of competitive markets in health care.

Directions:

In a 4-5 page paper, APA 6th edition, provide an explanation of the changing health care labor force and US population.

Provide a detailed analysis of the changing health care labor force, causes of these changes and the impact of these changes on the US healthcare system.

In addition, propose solutions to the impact of the health care labor force changes or how to leverage the position impact of these changes.

 

no plagarism please must be new and authentic

Assignment: The Key Concepts in Economics

Write a three to four (3-4) page paper in which you:

Identify at least four (4) key points of a relevant economic article from either the Strayer Library or a newspaper. The article must deal with any course concepts covered in Weeks 1-8.
Apply one (1) of the following economic concepts (supply, demand, market structures, elasticity, costs of production, GDP, Unemployment, inflation, aggregate demand, and aggregate supply) to the key points that you highlighted in Question 1.
Explain how the concept that you identified in Question 2 could affect the U.S. economy.
In your concluding paragraph, state whether you agree or disagree with the economic article identified in Question 1. Provide a rationale for the response.
Use at least three (3) quality resources in this assignment with one (1) being your article.
Your assignment must follow these formatting requirements:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:

Analyze the dynamics of supply and demand to anticipate market equilibrium.
Analyze the elasticity of demand and supply and its importance, and the effect of taxes or other public policies.
Describe the impact of various forms of competition on business operations with emphasis on perfect competition.
Use technology and information resources to research issues in principles of economics.\
Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills, using the following rubric found here.

Financial Literacy

Complete the table for Homework for Unit 10 Homework Practice Problems. After you determine your annual salary, divide by 12 to get monthly salary and base budget for monthly expenses. Be sure to list the fraction, decimal, and percentage representations correctly. This assignment is to help you organize for the Financial Literacy Project. It is worth 20 points: 5 points for expense list and amount, 5 points for correct fraction, 5 points for correct decimal, and 5 points for correct percent. Important Note: The final version of this table should also be included in your Financial Literacy Assignment.

life expectancy and life patterns

This project relies on multiple regression analysis to analyze a data set that is of interest to you. The final report for the project should be a 5-10 page single-spaced paper that describes the questions of interest, how you used your data set to analyze these questions with details on the steps you used in your analysis, your findings about your question of interest and the limitations of your study. Specifically, your report should contain the following:

 

Introduction. The introduction succinctly states the problem you are interested in, briefly describes your data and the method of analysis, and summarizes your main conclusions. A summary of what you set out to learn, and what you ended up finding. It should summarize the entire report.

Data Description. This section provides the details of the data sources, any transformations you have done to the data (for example, changing the units of some variables), gives a table of summary statistics (means and standard deviations) of the variables, and provides scatterplots and/or other relevant plots of the data. If there are outliers other than those arising from corrected typographical or computer errors, this is the place to point them out.

Regression Analysis. Describe how you used multiple regression to analyze the data set. Specifically, you should discuss how you carried out the steps in analysis discussed in class, i.e., exploration of data to find an initial reasonable model, checking the model and changes to the model based on your checking of the model.

Empirical Results. This section provides the main empirical results in the paper. Conventionally, regression results are presented in tabular form, with footnotes clearly explaining the entries. The initial table of results should present the main results; sensitivity analysis using alternative specifications can be presented in additional columns in that table or in subsequent tables. For organizational purposes and clarity, you may chose to have some tables at the end of the paper, with appropriate references in the body of the paper as needed. The text should provide a careful discussion of the results, including assessments both of statistical significance and of economic significance, that is, the magnitude of the estimated relations in a real-world sense.

Summary and Discussion. This section summarizes your main empirical findings and discusses their implications for the original question of interest. Describe any limitations of your study and how they might be overcome in future research and provide brief conclusions about the results of your study.

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