Business, 07.12.2019 03:31 DjPeaceQueen

The five and dime store has a cost of equity of 14.8 percent, a pretax cost of debt of 6.7 percent, and a tax rate of 34 percent. what is the firm's weighted average cost of capital if the debt-equity ratio is .46?

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Answer from: elijah1090

WACC = Ke(E/V) + Kd(D/V)

WACC = 14.8(100/146) + 6.7(46/146)(1-0.34)

WACC = 10.1370 + 1.3932

WACC = 11.53%

Explanation: The weighted average cost of capital of the firm is a function of cost of equity and the proportion of equity to the value of the firm plus after-tax cost of debt and the proportion that debt bears to the value of the firm. The deb t-equity ratio is 0.46(46/100), which implies that debt is 46 while equity is 100. The total value of the company is 146.

Answer from: Quest

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

Answer from: Quest

engine assembler, survey reasearcher, auditor

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