Question

In: Accounting

Hello these are Accounting questions please answer the questuins and show me your work and how...

Hello these are Accounting questions

please answer the questuins and show me your work and how you get the answer as soon as possible

Q6)

The following data pertains to Radek Corp., a manufacturer of office supplies. Dollar amounts in thousands.

Total assets

$8,731

Interest-bearing debt

$4,239

Average borrowing rate for debt

10.0%

Common equity:

Book value

$3,130

Market value

$16,284

Marginal income tax rate

35%

Market equity beta

1.33


Determine the weight on debt capital that should be used to calculate Radek's weighted-average cost of capital.

Select one:

A. 20.65%

B. 52.54%

C. 26.03%

D. 57.52%

Q7)

The following data pertains to Radek Corp., a manufacturer of office supplies. Dollar amounts in thousands.

Total assets

$8,731

Interest-bearing debt

$4,239

Average borrowing rate for debt

10.0%

Common equity:

Book value

$3,130

Market value

$16,284

Marginal income tax rate

35%

Market equity beta

1.33


Determine the weight on equity capital that should be used to calculate Radek's weighted-average cost of capital.

Select one:

A. 42.48%

B. 73.97%

C. 47.46%

D. 79.35%

Q8)

The following data pertains to Radek Corp., a manufacturer of office supplies. Dollar amounts in thousands.

Total assets

$8,731

Interest-bearing debt

$4,239

Average borrowing rate for debt

10.0%

Common equity:

Book value

$3,130

Market value

$16,284

Marginal income tax rate

35%

Market equity beta

1.33


Calculate Radek's weighted-average cost of capital.

Select one:

A. 11.89%

B. 12.48%

C. 13.25%

D. 11.50%

Q9)

Wesley Corporation currently pays a $1.55 dividend and its current stock price is $53.50. Assuming the company’s cost of equity capital is 6% use the dividend discount valuation model to estimate the company’s growth rate.

Select one:

A. 1.7%

B. 2.4%

C. 6.0%

D. 3.1%

Solutions

Expert Solution

Value of Debt                                    = $4239

Market value of Common Equity     = $16284

Total Value                                                 = $20523

(Q6) weight on debt capital that should be used to calculate Radek's weighted-average cost of capital.

Weight on Debt    = ($4239 /$20253 ) x 100

                             = 20.65%

(Q7)weight on equity capital that should be used to calculate Radek's weighted-average cost of capital.

Weight on Equity = ($16284/$20523) x 100

                             = 79.35%

(Q8) Radek's weighted-average cost of capital

After Tax Cost of debt = 6.5%

Cost of Equity = 5.3% + (7.30 x 1.33) = 15%

weighted-average cost of capital       = (6.5 x 20.65%) + (15 x 79.35%)

                                                          = 13.25%

(Q9) Wesley Corporation currently pays a $1.55 dividend and its current stock price is $53.50. Assuming the company’s cost of equity capital is 6% use the dividend discount valuation model to estimate the company’s growth rate.

Stock price under dividend discount valuation model = D0(1+g) / (Ke-g)

$53.50 = $1.55 (1 + g) / (0.06 – g)

$3.21 – 53.50 g = 1.55 + 1.55g

55.05g = 1.66

G = 3.21%


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